Surely us consider the case of a lottery

Surely it must be clear that to waste so much time and so much brain-power, without the certainty or even the probability of adding to one’s wealth, is the height of folly, even if we leave out of account the bad effect that gambling has upon the moral character. No one should ever purchase the chance of gain by the risk of loss, unless he has good reason to believe that the chance of gain exceeds the risk of loss.

In lotteries and in other kinds of gambling, in which the element of skill does not affect the result, either the gambler’s prospects of gaining and losing are exactly equal, or else, as more often happens, he is more likely to lose than to gain. For the sake of illustration, let us consider the case of a lottery for a hundred rupees, in which there are ten tickets costing ten rupees each. In this case each purchaser of a ticket has a tenth of a chance of winning one hundred rupees, for which he pays just the value of that chance, namely, ten rupees.

As a matter of fact, in almost all lotteries a large percentage of the value of the tickets goes to Pay the expenses of management, so that the subscriber’s chance of a prize is considerably less in value than the sum he pays for his ticket. A sensible business man would not care to speculate on such terms. He is, however, quite willing to undergo a small amount of risk, when there is a favourable prospect of thereby obtaining large profits.

The shopkeeper or merchant knows well enough that some of the goods he buys may deteriorate in value before he can find a purchaser for them, and that it is quite possible that he will in the end have to sell them at a loss. But he has reasonable grounds for trusting that in the course of the year his profits will, to a considerable extent, exceed his losses, or else he would try some other means of earning a livelihood. There is, indeed, as indicated by the proverb we are considering, a close proportion between gain and risk. In the first place the gain obtained in any mercantile speculation is divided among the partners according to the quantity of capital subscribed. Other things being equal, the partner who risks two lacs of rupees in a business will receive twice as large a share of the profits as a partner who only risks one lac.

If we compare different speculations, we find that, where there is much danger of loss, there is a prospect of correspondingly great gain. If you lend money to an unstable party, you will be in great danger of losing both interest and capital, but in compensation you may get interest for several years at the high rate of twenty per cent. On the other hand, while the holder of Govt. Bonds is secure against heavy loss, he gets interest for his money at the rate of less than three per cent. The clever man of business is better able than his rivals to calculate the risk of any particular speculation, and by his superior knowledge increases his wealth.

He plunges boldly into some speculation which he knows to be less dangerous than it is supposed to be the world at large, and so gains large profits, though not without risk of loss. If must, however, be remembered that to make such venturesome speculations with success requires the highest intellectual capacity on the part of the speculator.

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