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Gamblers as personal finance activists

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  • Geng Li
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Abstract

Gambling behavior can serve as an informative indicator of important household heterogeneity that is difficult to observe directly in data. We present, to the best of our knowledge, the first comprehensive study of the consumption and personal finance of gamblers using a nationwide representative household survey. We find that consumers are more likely to gamble when income is higher than its normal level predicted by observable characteristics, and that nongambling expenditures tend to increase with gambling activities. In addition, gamblers are more likely to concurrently have various types of debt and assets, assuming a more active position on household balance sheets. However, gamblers do not necessarily have a higher net worth than comparable nongamblers. Gamblers also tend to engage in health-wise risky behaviors, such as smoking and heavy drinking, while paying out-of-pocket on life and health insurance. We present extensive evidence that such behavior differences observed in the data are not primarily due to different degrees of careless reporting to the survey. Rather, we argue that our findings are consistent with the notion that certain consumers, namely, the active participants in personal finance markets, take on gambling as a form of entertainment.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2012-18.

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Date of creation: 2012
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Handle: RePEc:fip:fedgfe:2012-18

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  1. Alexander Michaelides & Francisco J. Gomes, 2005. "Optimal life cycle asset allocation : understanding the empirical evidence," LSE Research Online Documents on Economics 193, London School of Economics and Political Science, LSE Library.
  2. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
  3. Telyukova, Irina A., 2007. "Household Need for Liquidity and the Credit Card Debt Puzzle," MPRA Paper 6674, University Library of Munich, Germany.
  4. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
  5. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland.
  6. Kathleen W. Johnson & Geng Li, 2010. "The Debt-Payment-to-Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1373-1390, October.
  7. Li, Geng & Smith, Paul A., 2010. "401(k) LOANS AND HOUSEHOLD BALANCE SHEETS," National Tax Journal, National Tax Association, vol. 63(3), pages 479-508, September.
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