Is gambling a tax on stupidity?

Gambling is often regarded as a lower form of pleasure with an elitist perception of gamblers as being either ignorant or exhibiting poor mathematical skills. Gambling also poses a challenge to the notion of rational decision-making because individuals take on wagers which are losing bets by expectation. From the paternalistic perspective, gambling may be attributed to poor decision-taking resulting from cognitive failures and biases. From the liberal perspective, however, it is possible to account for gambling within the framework of rational choice by appealing to risk preferences or by a utility of gambling itself. This paper examines how a person’s cognitive ability (IQ) predicts his betting behaviour. We combine three individual-level data sets from Finland, including online horse bets from the betting monopoly, cognitive ability test scores from the Finnish Defence Forces and administrative registry data on Finnish citizens. Our results show that intelligence is a positive predictor of participation, gambling consumption and success in gambling. Moreover, we find that gamblers are unlikely to exhibit poor mathematical skills because mathematical intelligence drives this result. Our results suggest that a one standard deviation increase in mathematical IQ from the mean increases the probability of participation in betting by more than a third, the bettor’s annual amount wagered by a half and his annual losses by 40%. Overall, our results are consistent with gambling being consumption of entertainment, which intelligent individuals enjoy. This is consistent with the liberal perspective on gambling.