: what did Charlie Munger mean when he said “gambling has a negative Net Present Value”?
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it means you lose money, or at least would make more money if you invested it into government bonds or other safe instrument.
Net Present Value is a formula that adds up current and future money flows, but discounts future flows, and discounts them more if they are further into the future. So negative NPV means that a huge win at some distant point in the future does not compensate for all the money you would have to spend to get that win.
The reason for discounting future money is that people are impatient (and mortal), and the fact that you can get interest on investments. If you want $100 in a year, and can get 5% interest on your invesments, then you only need to invest $95 now. So $95 is the present value of “$100 in a year”.
That means that the house always wins. No matter how much money you dump into gambling, if you add up all losses and winning throughout someone’s life, there is a good chance that for absolute majority of gamblers the amount will be negative, meaning they lost more than they won.
Because gambling is generally a net loss, regardless of scale.
the money you are spending in it is money you are not investing into somethin g that can actually incrase in value however small .
there is also the fact that most insituitions that offer gambling as a service, do to so with the intent ot make money, so the game they offer where possible have the odd slighty stacked in their favor(the ever so common Expression ” The House always wins” is very much true) s othat in the long run anyone using their installations is losing money.
If 10,000 people play a casino game some of them will win their games and some will lose, but if you add up all the winnings and the losing amounts the full sun will be negative. If you have them play more games, the negative sum will grow.
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