An Empirical Analysis of Individual Level Casino Gambling Behavior

51 Pages Posted: 22 Oct 2008 Last revised: 9 Jan 2012

Sridhar Narayanan

Stanford Graduate School of Business

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business

Date Written: June 16, 2011

Abstract

Gambling and gaming is a very large industry in the United States with about one-third of all adults participating in it on a regular basis. Using novel and unique behavioral data from a panel of casino gamblers, this paper investigates three aspects of consumer behavior in this domain. The first is that consumers are addicted to gambling, the second that they act on "irrational" beliefs, and the third that they are influenced by marketing activity that attempts to influence their gambling behavior.

We use the interrelated consumer decisions to play (gamble) and the amount bet in a casino setting to focus on addiction using the standard economic definition of addiction. We test for two irrational behaviors, the "gambler's fallacy" and the "hot hand myth" - our research represents the first test for these behaviors using disaggregate data in a real (as opposed to a laboratory) setting. Finally, we look at the effect of marketing instruments on the both the decision to play and the amount bet.

Using hierarchial Bayesian methods to pin down individual-level parameters, we find that about 8% of the consumers in our sample can be classified as addicted. We find support in our data for the gambler's fallacy, but not for the hot hand myth. We find that marketing instruments positively affect gambling behavior, and that consumers who are more addicted are also affected by marketing to a greater extent. Specifically, the long-run marketing response is about twice as high for the more addicted consumers.

Keywords: addiction, gambling behavior, selection models, casino gaming and gambling, Hierarchical Bayes Methods, slots

Suggested Citation

Narayanan, Sridhar and Manchanda, Puneet, An Empirical Analysis of Individual Level Casino Gambling Behavior (June 16, 2011). Stanford University Graduate School of Business Research Paper No. 2003 (R1). Available at SSRN: https://ssrn.com/abstract=1287714 or http://dx.doi.org/10.2139/ssrn.1287714

Sridhar Narayanan (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9675 (Phone)

HOME PAGE: http://https://gsbapps.stanford.edu/facultybios/bio.asp?ID=409

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-936-2445 (Phone)
734-936-8716 (Fax)

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