An Empirical Analysis of Individual Level Casino Gambling Behavior

Gambling and gaming has evolved to becoming a very large and pervasive industry in the United States over the last three decades, with over $73 billion in revenues and 33% adult participation. The nature of this industry and its rapid growth has led to a lot of debate about its benefits and costs. In this paper, our access to a rich and new dataset on individual consumer behavior vis-a-vis casino visitation and activity allows us to take a data based approach to investigating some of the commonly raised criticisms of the casino gaming industry. We focus our attention on three of the commonly cited criticisms of the gambling industry-- it leads to addictive behavior (with potentially harmful individual and societal effects), it leverages "irrational" consumer beliefs and it uses marketing incentives to influence gamblers. We use the commonly accepted definition of addiction from the economics literature to test for its presence i.e., that current consumption is affected by past consumption. We fit a model of the play decision and bet amount (given play) to data from a consumer panel of casino visitors over a two year period. Our data are at a highly disaggregate level--we look at play decisions within a given trip for individual consumers. Our modeling approach allows us to exploit the rich variation in the data both across and within individuals. Our results show that, controlling for other reasons that could induce play, only about 8% of all consumers show evidence for addiction (as defined by us). While this proportion may look small (in absolute terms), it is consistent with research in other academic fields that has focused on casino gamblers. This result also suggests, that for a majority of casino gamblers, the failure to find patterns of addiction may be interpreted as support for the view that the role of casinos for these gamblers is to provide entertainment. In terms of irrational beliefs, our analysis allows us to test for behavior based on two such beliefs--the "hot hand myth" and the "gamblers fallacy." We find evidence for the gamblers fallacy in both directions--consumers who win (lose) a bet are less (more) likely, on average, to continue betting. We believe this is the first study to conduct such an analysis on individual-level behavioral data (as opposed to laboratory settings). We also find that marketing activity has a positive effect on the decision to play and the amount to bet. In terms of effect size, marketing (comps) seem to be more similar to advertising rather than price promotions. Finally, we find some evidence that marketing activity is more effective for consumers who exhibit more addictive behavior.