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Throughout history, gambling has been a popular and addictive pastime. However, until the Renaissance, people engaged in gambling without using any system of odds or risk management. Gambling was seen as a game of chance and luck, and people relied on “Lady Luck” to bring them victory. Adam Smith recognized the propensity of humans to take risks and its role in economic progress, but he also feared the negative consequences when risk-taking went too far. John Maynard Keynes acknowledged the importance of risk-taking in investment but also acknowledged the need to balance it with rational calculation. The world would be dull without the confidence and conceit that drive people to take risks, but when taken to extremes, it can lead to negative effects on society.

Gambling has been a part of human culture for thousands of years. It has been engaged in by people from all walks of life, from soldiers to emperors to commoners. The earliest form of gambling was a dice game played with knucklebones called astragalus. Card games also developed in Asia and became popular in Europe with the invention of printing. Poker, a variation of an older game, is about 150 years old and remains popular today.

The most addictive forms of gambling are the pure games of chance played at casinos. Gambling has become a rapidly growing industry in the United States, with estimates suggesting it is a $40 billion business. However, the social and economic costs of gambling are high, with state governments often paying more in costs than they receive in revenue from casinos.

Games of chance differ from games of skill because the outcomes are determined by fate or luck. Games like roulette, dice, and slot machines rely on probability, while games like poker and betting on horses involve both skill and luck. The stock market is also often compared to a gambling casino, as winning in the stock market can be seen as the result of both skill and luck.

Gamblers often respond to losing streaks and winning streaks in an asymmetric fashion. They believe that losing streaks will come to an end and winning streaks will continue. However, the concept of the law of averages does not apply to gambling. The last sequence of throws or bets does not have any impact on future outcomes. Insurance companies, on the other hand, manage risk by setting premiums based on the losses they expect to sustain in the long run and by maintaining reserves to cover short runs of bad luck.

Time is a dominant factor in gambling and risk management. Without the element of time, there would be no risk. Time transforms risk, and the nature of risk is shaped by the time horizon. Irreversible decisions must be made on incomplete information, and the longer the time horizon, the greater the value of procrastination or not acting. Hamlet’s hesitation in the face of uncertain outcomes is seen as detrimental because it prevents action, but the value of not acting is also recognized.

Greek mythology used a game of craps to explain the beginning of everything, but the Greeks themselves did not develop a quantitative approach to probability. They had a sharp distinction between truth and probability, and their philosophy focused on logical proof rather than empirical experimentation. The Greeks worshiped the gods, who were seen as the creators and controllers of the universe, and they did not have a numbering system that would have enabled them to calculate and measure outcomes.

The spread of Christianity brought a shift in perception, where the future became a matter of moral behavior and faith. Christians believed that human destiny was prescribed by God, but they still sought a better life on earth. The Renaissance and the Protestant Reformation brought about a change in attitudes towards the future. People realized that they were not at the mercy of fate or random chance, and they had to take responsibility for their decisions. Trade and commerce expanded, and forecasting became an essential part of decision-making.

The mastery of risk began with the measurement of odds and probabilities. The introduction of Arabic numbers and the development of bookkeeping and forecasting enabled people to make decisions based on a better understanding of the future. The Renaissance and the Protestant Reformation set the stage for the mastery of risk-taking and the recognition that the future could be predictable and controllable to some extent.

Overall, the mastery of risk is a uniquely modern concept that emerged through a combination of cultural, philosophical, and technological developments. The recognition of probability and the ability to measure and calculate outcomes played a crucial role in this transition from relying on luck to managing risk.

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