We let people put their houses up as collateral in order to get a small business loan to start a restaurant. Statistically speaking those restaurants will be losers 80% of the time. They would be better off playing roulette and putting their house on black
1. The majority of restaurants fail for reasons that a lender will spot in the loan application process. Inexperience, location, undercapitalization, etc... The rate of failure for a restaurateur that manages to secure a loan is nowhere near 80%.
2. If a person with a gambling problem takes out a home equity loan and bets it all on black and wins, the most likely outcome is that they then keep betting until they eventually lose. So while one bet may have close to a 50% change of paying off, the real world expected value of giving someone $100k to go to a casino is much less than if you'd given that same $100k to a random person who wants to start a restaurant.
3. Opening a failed restaurant isn't something that someone is likely to do more than once. It's hard to find exact numbers, but the number of people who will ever start a failed restaurant is less than a tenth of a percent. The number of people who will experience a gambling disorder at some point in their life is 1-2%.
4. Even assuming a person does have some kind of problem and wants to keep trying and failing to open restaurants, the process of opening a restaurant takes a lot more time and effort than betting on roulette.
I wasn’t literally saying they should gamble their house rather than start a restaurant. My point is that we let people make all sorts of terrible financial decisions. Letting the government start to decide which decisions are worse than others, and ban them, is a slippery slope.
You don’t have imagine a slippery slope. Collectively we’ve been doing it for most of our history.
A significant portion of the the laws and regulations on the books today are “letting the government decide which financial decisions are worse than others.”
Gambling has in most societies throughout history been recognized as particularly pernicious. Early data from our recent experiments with loosening regulations seems to provide evidence that gambling produces significant externalities that need to be dealt with through some non-market means.
2. If a person with a gambling problem takes out a home equity loan and bets it all on black and wins, the most likely outcome is that they then keep betting until they eventually lose. So while one bet may have close to a 50% change of paying off, the real world expected value of giving someone $100k to go to a casino is much less than if you'd given that same $100k to a random person who wants to start a restaurant.
3. Opening a failed restaurant isn't something that someone is likely to do more than once. It's hard to find exact numbers, but the number of people who will ever start a failed restaurant is less than a tenth of a percent. The number of people who will experience a gambling disorder at some point in their life is 1-2%.
4. Even assuming a person does have some kind of problem and wants to keep trying and failing to open restaurants, the process of opening a restaurant takes a lot more time and effort than betting on roulette.