A Violation of Dominance and the Consumption Value of Gambling

University of Southampton Discussion Paper Number 95-106

Posted: 15 Nov 1995

See all articles by Johnnie E.V. Johnson

Johnnie E.V. Johnson

University of Southampton

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: Not Provided

Abstract

We document an apparently widespread violation of dominance in the horseracing betting market in the United Kingdom, and use the systematic variation in the incidence of this violation to estimate the consumption value of gambling. Gamblers in the UK face a tax on gambling of 10%, but have the choice of paying the tax either at the time of wager, or on any return on a successful bet. It can be shown, however, that the latter act is strictly dominated by another action in which tax is paid on the wager. We explore the hypothesis that this apparent violation of rationality may be explained by a component of utility which represents the consumption value of gambling, which in turn varies with the amount wagered. We then estimate this component from a dataset consisting of a record of 25,000 individual bets using probit analysis of the tax decision.

JEL Classification: D81, C25

Suggested Citation

Johnson, Johnnie E.V. and Shin, Hyun Song, A Violation of Dominance and the Consumption Value of Gambling (Not Provided). University of Southampton Discussion Paper Number 95-106. Available at SSRN: https://ssrn.com/abstract=6927

Johnnie E.V. Johnson (Contact Author)

University of Southampton ( email )

Highfield
Southampton SP10 1BJ, Hampshire SO17 1BJ
United Kingdom
(+44) 01703 593966 (Phone)
(+44) 01703 593844 (Fax)

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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