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Gambling — Fair and Square?

Kengo Arao explores the mechanisms of irationality in gambling.

On the first lecture of Economics 1, you encounter the species of homo economicus – rational economic agents who maximise their utility based on their clear-cut preferences. In a few weeks’ time, you’d find yourself mechanically solving equations for the optimal amount of consumption using demand and supply functions. The degree to which this type of economic thinking applies, however, varies substantially from market to market. Gambling is certainly where actions of participants deviate from this classic assumption of rationality as they suffer from cognitive biases and imperfect information.

Addicted to Uncertainty
Traditionally, monetary gain is considered to be the primary driving force of gambling. People engage in gambling activities as they are optimistic in their chance of winning for several reasons. Kahneman and Tversky point out that people overestimate extremely small probabilities. Although the difference between 0.1% and 0.001% affects the expected outcome substantially, people cannot adjust their estimate accordingly and frame them simply as ‘very unlikely’. In addition, successful stories of a one-time winner are often spread by the media and the industry through articles and advertisement, making those rare cases of winning plausible.

However, money alone does not explain the loss-seeking behaviour of gamblers that is commonly observed – the more you lose, the more you press on. A 2013 study by two psychologists Anselme and Robinson finds that it is not money that motivates gamblers; thrill of the game is. This is sensible in that a predictable game is inherently dull like watching a football match with a known winner. Measuring the levels of a motivation-inducing dopamine released in (pathological) gamblers and a healthy control group, they find that gamblers become incentivised to gamble more as the level of uncertainty goes up. This effect culminates when uncertainty is at its highest: at fifty percent. Interestingly, both groups experience the same physiological reaction when winning. However, gamblers produce much more motivational dopamine when losing—even higher than when winning! The result is perpetual loss-chasing in gambling, where the only purpose of winning is to pursue more gambling and its uncertainty.

But then, where does this pursuit of reward uncertainty come from? The answer might lie in the animal kingdom, argue the authors. In natural environments, when resources are scarce and the probability of finding them is low, animals face the danger of extinction if they keep their effort at normal levels. Over the course of evolution, animals adapted to generate additional motivation to persevere in a Sisyphean task of finding resources. It is hence possible that the seemingly incomprehensive behaviour of gamblers is phylogenetically passed down from earlier mammalian species.

Gambling in Your Pocket
In today’s world, gambling is not exclusive to slot machines and sports betting. To attract millennials, casino industries across the world are now turning into mobile games which saw exponential growth over the past decade. Readily accessible gambling environment in your pocket, such as online poker and roulette, would expose a wider range of consumers, especially the young, to the world of gambling. Furthermore, the rise of ‘freemium’ business model in mobile games, which lets you download the game for free and gives you an option to top up for extra items and turns, complicates the problem. Some games have monetization mechanisms directly comparable to gambling activities. In Puzzle & Dragons, an RPG-style puzzle game mostly popular in Asia, players use in-app purchase for a random draw in an attempt to acquire rare monsters that help you progress in the game, with undisclosed probabilities of winning a rare item estimated at as low as half a percent. It is worrying that gaming companies are effectively abusing the mobile gaming platform across the world to provide legal gambling to children.

The world is now shifting towards liberalisation of gambling. Japan, for example, passed a de facto casino bill in late 2016 to take advantage of the projected surge in the number of foreign tourists as the 2020 Tokyo Olympics approaches. The third-largest economy, with a strong presence in the gaming industry worldwide, is likely to bring a disruption in the increasingly mobile world of gambling.

In today’s world where one is potentially exposed to an unhealthy gambling environment online and still constrained by cognitive limitations, we should remind ourselves that we are all at a risk of falling victim to problem gambling, be it through a bookmaker or a mobile game on your phone.

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