December 23, 2011

Why Do People Gamble?

Allow me to digress from the original intent to first sift the literature of business models for clues how to best get my research started. Dr. Jay Bal’s straightforward question when I met him earlier this month, “why do people bet?” first demanded a better answer than I could give him on the spot.

Whereas playing is inherent nature of many species, gambling, although it could be human’s second oldest diversion (Thomson, 1997) is not necessarily biologically wired (Anjoul, 2003). From cultural perspective then, in individualistic cultures (Hofstede, 1984; Hofstede, 1993) people would tend towards fulfilling own needs and interests: a mindset that could be associated with a gambling state of mind. It would then be tempting to conclude, ignoring for the moment analysis that have criticized the individualism-collectivism spectrum (Yeh, 1988), that in the collectivistic labeled Chinese societies gambling would not be on top of the list of leisure activities. Since this could be a heavily disputed conclusion, as observed from my position in Hong Kong, for the moment I would also like to let go of cultural explanations on why people gamble.

Let’s get into the mud. First and foremost reason is that betting has a financial outcome. The punter expects to have a chance (p) that his return (R) will be larger than his investment (I) when he leaves the betting scene: p*R > I. A positive financial outcome becomes more realistic with higher values of both p (winning probabilities, e.g., in skilled Black Jack) and R (large pay-out in case of e.g., national lottery jackpot) and lower values of I (e.g., a couple of bucks in a slot machine, no big deal).

Whether that punter in skilled (e.g., Black Jack, poker, horse racing) or unskilled (e.g., lotteries, bingo, roulette) betting games has a correct perception of the real probabilities remains questionable, but as long as p>0, and he has experienced some near hits, he has an incentive to ‘try his luck’.

Why someone would want to ‘try his luck’ to generate financial positive outcome (instead of working more hours at the office, for example) is a question that could lead us into the study of human psychology. We could look at positive reinforced arousal in the context of sensation seeking theory (Zuckerman, 1979), or from the reversed angle, we could look at conditioned escape from reality into a world of wishes. Such questions become more relevant when the study object is around problem gambling, an inroad I do not intend to take at this moment.

For now, let me share my second largest reason to occasionally dance with Lady Fortune on the race tracks: the pleasure of visibly increasing the p value by studying the necessary materials at hand; very much like increasing your chances to win in a chess game by preparing for a chess opening you know your opponent will be troubled with. The small I needs not generate more than the Reward of a fresh pint! (Alas, alcohol and gambling - did not expect to end there when I started ...)

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