Empirical Evidence for Gambling

Abstract

Abstract This wide-ranging chapter first considers the problems with the attempts to explain the demand for gambling with the curvature of the utility function and with the explanations based on the insurance-purchasing gambler. It then reviews the empirical evidence suggesting that the implied context for a consumer’s gambling decision is the workplace. The demand for gambles is re-presented next using a modified prospect theory diagram. The chapter suggests that research on risk preferences may have been biased through mental accounting and that such accounting might explain the phenomenon of preference reversals. Next, it reviews the empirical studies that attempt to determine the motivation for recreational gambling, and those that show that entertainment is dependent on the ability of the gambling game to generate additional income. It also considers the studies of a welfare gain from gambling. An appendix reconsiders one of the alternative motivations for gambling: the gambler’s fallacy.