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An Empirical Analysis of Individual Level Casino Gambling Behavior

Author

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  • Narayanan, Sridhar

    (Stanford U)

  • Manchanda, Puneet

    (U of Michigan)

Abstract

Gambling and gaming has evolved to becoming a very large and pervasive industry in the United States over the last three decades, with over $73 billion in revenues and 33% adult participation. The nature of this industry and its rapid growth has led to a lot of debate about its benefits and costs. In this paper, our access to a rich and new dataset on individual consumer behavior vis-a-vis casino visitation and activity allows us to take a data based approach to investigating some of the commonly raised criticisms of the casino gaming industry. We focus our attention on three of the commonly cited criticisms of the gambling industry-- it leads to addictive behavior (with potentially harmful individual and societal effects), it leverages "irrational" consumer beliefs and it uses marketing incentives to influence gamblers. We use the commonly accepted definition of addiction from the economics literature to test for its presence i.e., that current consumption is affected by past consumption. We fit a model of the play decision and bet amount (given play) to data from a consumer panel of casino visitors over a two year period. Our data are at a highly disaggregate level--we look at play decisions within a given trip for individual consumers. Our modeling approach allows us to exploit the rich variation in the data both across and within individuals. Our results show that, controlling for other reasons that could induce play, only about 8% of all consumers show evidence for addiction (as defined by us). While this proportion may look small (in absolute terms), it is consistent with research in other academic fields that has focused on casino gamblers. This result also suggests, that for a majority of casino gamblers, the failure to find patterns of addiction may be interpreted as support for the view that the role of casinos for these gamblers is to provide entertainment. In terms of irrational beliefs, our analysis allows us to test for behavior based on two such beliefs--the "hot hand myth" and the "gamblers fallacy." We find evidence for the gamblers fallacy in both directions--consumers who win (lose) a bet are less (more) likely, on average, to continue betting. We believe this is the first study to conduct such an analysis on individual-level behavioral data (as opposed to laboratory settings). We also find that marketing activity has a positive effect on the decision to play and the amount to bet. In terms of effect size, marketing (comps) seem to be more similar to advertising rather than price promotions. Finally, we find some evidence that marketing activity is more effective for consumers who exhibit more addictive behavior.

Suggested Citation

  • Narayanan, Sridhar & Manchanda, Puneet, 2008. "An Empirical Analysis of Individual Level Casino Gambling Behavior," Research Papers 2003, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:2003
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    References listed on IDEAS

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    1. Charles T. Clotfelter & Philip J. Cook, 1991. "The "Gambler's Fallacy" in Lottery Play," NBER Working Papers 3769, National Bureau of Economic Research, Inc.
    2. Rishin Roy & Pradeep K. Chintagunta & Sudeep Haldar, 1996. "A Framework for Investigating Habits, “The Hand of the Past,” and Heterogeneity in Dynamic Brand Choice," Marketing Science, INFORMS, vol. 15(3), pages 280-299.
    3. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc.
    4. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    5. Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-473, March.
    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    7. Kearney, Melissa Schettini, 2005. "The Economic Winners and Losers of Legalized Gambling," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(2), pages 281-302, June.
    8. Olekalns, Nilss & Bardsley, Peter, 1996. "Rational Addiction to Caffeine: An Analysis of Coffee Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1100-1104, October.
    9. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
    10. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-763, Part I Ju.
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    Cited by:

    1. Aidan R. Vining & David L. Weimer, 2013. "An assessment of important issues concerning the application of benefit–cost analysis to social policy," Chapters,in: Principles and Standards for Benefit–Cost Analysis, chapter 1, pages 25-62 Edward Elgar Publishing.

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