In the 21st century United States we have lots of basically prosperous people who are at no risk of starving and spend a fair share of their income on leisure and entertainment pursuits. I went to see the woeful Wizards on Monday, and even though the game was far from sold out there were thousands of people there who'd bought tickets. And most of us were buying some pretty pricey in-arena beers as well. And in addition to buying tickets to games, I also have an NBA League Pass Broadband subscription, I read a few NBA blogs, and I even subscribe to ESPN Insider. As it happens I don't bet on NBA games anymore, but I don't think anyone would find it shocking if I did. Certainly lots of sports fans gamble on sports, and most of them are clearly not engaged in a rigorous cost-benefit analysis of this as a use of their time from a financial perspective.
Felix Salmon argues, persuasively, that we should think of a lot of stock-picking behavior as basically the same kind of thing.
Lots of people have hobbies, especially if they're affluent, and men in particular seem drawn to a broad class of hobbies that's structurally similar to short-term stock market speculation. You obsessively track minutia of data. You gather "insider" information that doesn't actually make you well-informed enough to beat genuine insiders. You run risks based on systematic overconfidence. And basically the whole thing makes sense if you think of it as a entertainment that's harmless when engaged in by the sufficiently affluent, but potentially destructive to a minority of people who are sucked into addictive behavior and wager money they can't afford to lose. If you try to think of sports gambling as income-maximizing investment activity, it looks incredibly puzzling but nobody looks at it that way. Stock picking is much the same.
And it's all fine as far as it goes, though as Keynes noted a long time ago it seems problematic to let this process have an undue weight in driving a country's overall capital expenditures. That in turn is why we're lucky that Doug Henwood is right and the stock market isn't really there to finance business investment.