Poor People Should Probably Gamble More

If she just gets socked with the fine and loses her license, she can still make other gambles that have a lot better expected value as overall utility, not just money. She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black. She can use the $130 to buy a bicycle or a moped, and maybe that's enough transportation to get by for now. And so forth.

The author has a good point in that the expected value in a gamble is often a better choice than the status quo, but reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy.

1. Money has a declining marginal utility. Winning that $130 isn't nearly as positive as losing it would have been negative. The author neglects to mention what happens the other 53% of the time when someone with mounting bills loses the last money they had. Debt spiral is usually the result. Even if the odds were 50/50, or in fact even if they were slightly favorable but it were a one-time deal, it would be better not to gamble. You should really only gamble in situations where the expectation is more than enough to offset the declining marginal utility, or is repeatable enough to accomplish that.

#2. If someone has the discipline to go into a casino, double their money, and leave without gambling further, then they probably had the discipline to avoid this situation in the first place. Casinos make billions of dollars because most people can't do this.

#3. It's fairly rare in the real world that there isn't some option better than gambling. Even a payday loan place probably gives you a higher EV than a roulette wheel. Borrowing from a credit card probably does as well. Do either to bridge the gap while looking for a second job. Also driving with a suspended license is an option.

#3.5 (bonus reason): You're much better off making a don't pass bet at a craps table while you're there. I think that's the best bet you'll find in a casino that doesn't require skill. (There are better, some that are even positive expectation, but I'm assuming our person isn't a professional video poker player.)

Yes, this is a very good point, perhaps the way I should have phrased the example was that she had $130 left in the bank after obtaining the necessities of life, to remove that concern. In that case, I think the logic goes through a bit better.

She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black.

In my example, that's exactly what I did (I drove as little as possible, but on occasion I had no choice), and I did, in fact, get away with it long enough to get my license back (it's worth noting that had I not gotten away with it, getting my license back would have been a much more troublesome process). But be aware, I was pretty lucky - if your license is taken away, your plate will get flagged if the car is registered in your name, and you'll absolutely get pulled over if a police officer sees you driving and has nothing better to do. My girlfriend was pulled over several times while driving my car during that period, and then immediately let go when they realized it wasn't me behind the wheel.

reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy

Indeed, it's not always the right solution - but it's also wrong to assume that just because the odds are against you in a bet, you shouldn't take the bet, if the other option is to do nothing, especially if doing nothing leaves you screwed anyways.

Of course, assuming any reasonable credit is available at all, and that the person is not in permanent deficit unable to eventually pay back a loan, would give rise to a dominant option C, where enough is borrowed to avoid the penalty. But maybe this same effect is what makes 'payday' loans at astronomical effective rates attractive to some people.

Is there some other 'guardian angel' business model possible from this effect -- protecting the liquidity-challenged from disproportionate late fees, via an automatic loan of just-enough to save the fee, splitting the savings with the affected person?

As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition.