The economics of gambling: A collection of essays (open access thesis)

Wheeler, Rhys (2018). (PhD Thesis, Lancaster University). Retrieved from: eprints.lancs.ac.uk/126780/1/2018wheelerphd.pdf

Abstract: Chapter 2 examines the harm associated with being a problem gambler. Problem gambling is conventionally determined by having a score in a questionnaire screen that exceeds some critical value. The UK is fortunate in having large representative sample surveys that embed such questions, and our estimate from the 2010 survey is that several hundred thousand people in the UK could be afflicted by PG. However, existing literature has not evaluated the size of the harm associated with being a problem gambler and this chapter uses this individual level survey data to evaluate the effect of problem gambling on self-reported well-being. Together with a corresponding effect of income on well-being a money-metric of the harm associated with being a problem gambler is derived. An important methodological challenge is that well-being and the harm experienced may be simultaneously determined. Nonetheless, instrumental variable estimates suggest that problem gambling imposes an even larger reduction in well-being than least squares would suggest. The role of gambling expenditures in the transmission between problem gambling and well-being is considered, distinguishing between draw-based games, such as lotto, from scratchcards, and from other forms of gambling.

Chapter 3 investigates the price elasticity of demand for the UK National Lottery – astate-licensed, draw-based lotto game. Little is known about the price elasticity of demand for gambling products because the “price” is typically hard to define. The exception is “lotto” where an economics literature has focused on the response of sales to variations in the prize distribution. Existing literature has used these responses make inferences about the price elasticity of demand, where price is defined as the cost of entry minus the expected winnings. In particular, the variation in the value of the jackpot prize pool, due to rollovers that are a feature of lotto, has been used as an instrument for price. This chapter argues that rollovers do not make valid instruments, because of their correlation with lagged sales, and propose an alternative identification strategy which exploits two arcane features of lotto. Finally, this chapter evaluates whether changes to the design of the UK National Lottery in 2013 and 2015 had a positive effect on the sales figures.

Chapter 4 investigates the extent to which the large, flat-rate tax imposed on the UK National Lottery is regressive. This chapter evaluates a Working-Leser demand model for lotto tickets using both Heckman’s selection model and Cragg’s double hurdle estimator using v household-level data. A unique strategy is employed to identify these two-stage routines by exploiting exogenous differences in consumer preference arising from religious practice. The income elasticity of lottery tickets is found to be significantly lower than previous estimates, suggesting that lottery tickets are inferior goods and that the (high) flat-rate tax imposed on lotto tickets is more regressive than previously thought. Whilst the three chapters are stand-alone essays, they are linked by the use of modern statistical techniques and the use of the best possible data. Together, they address key issues on the economics of gambling and the results are new to their respective literatures and of interest to academics and policy makers alike. Access thesis online

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Increased Urge to Gamble Following Near-Miss Outcomes May Drive Purchasing Behaviour in Scratch Card Gambling (full text)

Madison Stange, Candice Graydon, Mike J. Dixon

Previous research into scratch card gambling has highlighted the effects of these games on players’ arousal and affective states. Specifically, near-miss outcomes in scratch cards (uncovering 2 of 3 needed jackpot symbols) have been associated with high levels of physiological and subjective arousal and negative emotional evaluations, including increased frustration. We sought to extend this research by examining whether near-misses prompted increases in gambling urge, and the subsequent purchasing of additional scratch cards. Participants played two scratch cards with varying outcomes with half of the sample experiencing a near-miss for the jackpot prize, and the other half experiencing a regular loss. Players rated their urge to continue gambling after each game outcome, and following the initial playing phase, were then able to use their winnings to purchase additional cards. Our results indicated that near-misses increased the urge to gamble significantly more than regular losses, and urge to gamble in the near-miss group was significantly correlated with purchasing at least one additional card. Although some players in the loss group purchased another card, there was no correlation between urge to gamble and purchasing in this group. Additionally, participants in the near-miss group who purchased additional cards reported higher levels of urge than those who did not purchase more cards. This was not true for the loss group: participants who experienced solely losing outcomes reported similar levels of urge regardless of whether or not they purchased more scratch cards. Despite near-misses’ objective status as monetary losses, the increased urge that follows near-miss outcomes may translate into further scratch card gambling for a subset of individuals.

Reinforcing Small Wins and Frustrating Near-Misses: Further Investigation Into Scratch Card Gambling – Open Access

Scratch card games are incredibly popular in the Canadian marketplace. However, only recently have researchers started to systematically analyze their structural characteristics and how these in turn affect the gambler. We present two studies designed to further understand the underlying physiological and psychological effects that scratch cards have on gamblers. We had gamblers (63 in Experiment 1, 68 in Experiment 2) play custom made scratch cards involving a small win, a regular loss and a near-miss—where they uncovered two out of the three symbols needed to win the top prize. Our predictions were that despite near-misses and losses being objectively equivalent (the gambler wins nothing) gamblers’ reactions to these outcomes would differ dramatically. During game play, skin conductance levels and heart rate were recorded, as well as how long gamblers paused between each game. Gamblers’ subjective reactions to the different outcomes were then assessed. In both studies, near-misses triggered higher levels of physiological arousal (skin conductance levels and heart rates) than losses. Gamblers paused significantly longer following small wins than other outcomes, and reported high arousal, positive affect and urge to gamble—a constellation of results consistent with their rewarding properties. Importantly near-miss outcomes were rated as highly arousing, negative in emotional tone, and the most frustrating of all three outcome types examined. In Experiment 2, when we measured subjective urge to gamble immediately after each outcome, urge to gamble was significantly higher following near-misses than regular losses. Thus, despite not rewarding the gambler with any monetary gain, these outcomes nevertheless triggered higher arousal and larger urges to gamble than regular losses, a finding that may explain in part, the allure of scratch cards as a gambling activity.