Implications for Transformative Public Policy June Cotte Ivey Business School University of Western Ontario Kathryn A. LaTour William F. Harrah College of Hotel Administration University of Nevada, Las Vegas

U.S. casino revenue is over $35 billion, and consumers lost $138 million per day at casinos in 2007 Gambling is increasingly perceived to be simply another form of leisure entertainment Almost half of Americans agreed that “Internet gambling should be permitted as long as it’s regulated by the government”

Common misunderstandings, conventional wisdoms, and beliefs about gambling Some misconceptions are commonly held societal perceptions, others are actually based on research that has been inappropriately generalized Outline beliefs and contrast to gambling realities; draw out the public policy implications.

People are loss averse (Kahneman and Tversky 1979) More painful to give up a current asset than it is pleasurable to buy that same asset (Thaler 1980) If either of these theories held in reality, casinos would not be successful, as they rely on gamblers giving up current assets (money) to engage in an risky activity

People in a “gain frame” should not risk money by gambling… but they often do. Also suggests when gamblers win they should stop gambling… but they often do not. Gamblers should be deterred by the certainty of long-term losses, but gamblers never know they will lose with certainty on the next gamble, and the certain long-term losses fail to deter them. It may be that the gambling environment itself, the context, reverses some of what we know from prospect theory.

In PT studies, the risks are known for the decision maker. For the gambler, the outcome is usually random. In PT studies, a person chooses between two options. In a casino the choices are almost limitless. In PT studies, the person is not making a choice about gambling their own money. “While many experiments aim to understand risky choice, only a small fraction explicitly links their results to real-world risk taking behavior.” (Simmons and Novemsky 2008)

Making consumers’ current gains/winnings salient should increase risk aversion. The environment of the casino itself distorts risk perceptions by highlighting winnings (representativeness bias) BUT the large numbers involved ($1,000,000 winners shown) likely work to reduce perceptions of one’s own loses. One implication would be a forced reduction of showing others’ wins – could helping gamblers focus on their own wins/losses.

Gamblers’ heart rates increase in casino, but not in the lab The correlation between size of bet and heart rate only significant in casinos with real money There is a negative correlation between the telic dominance scale and the size of bets, but only in real casinos Sensation seeking, combined with size of a bet, affects arousal for real casino gamblers but not subjects in the lab Playing for real money alters stress hormones and heart rate, makes gamblers feel less tired for several hours afterward – even more pronounced for problem gamblers.

Lab-based studies of hypothetical gambling should be discouraged, because the environment, as well as real monetary risk, create different reactions. The physical reactions of real gamblers lead to more irrational beliefs. Policy efforts should focus on getting the gambler to physically disengage from the environment (such as a cooling off period online, or removing ATMs from the casino floor),

Much of the research on gambling has been on problem gamblers. We know little about the process of moving from recreational usage to problem usage. Motives for gambling among problem gamblers are much stronger, and different, than those held by recreational gamblers - should concern those who use the literature generated on problem gamblers to inform the study of recreational gambling.

Do not only fund studies of pathological gambling, but begin to look a recreational gambling (everyone starts somewhere). Focus on research that allows casinos (online and off) to identify observable behaviors that warrant intervention. Direct research and interventions at the triggers for the transition from recreational to problem gamblers.

The decision to chase losses looks similar, at a neural level, to craving for a drug among addicts. The perception that gamblers chase losses is in part a misconception, because gamblers do not often do this. The anecdotal phenomenon of chasing losses might be more prevalent in a lab. A longitudinal study of real online gamblers showed they gradually became less likely to chase losses.

Research on the “break-point” where gamblers shift from risk- seeking to risk-averse Gamblers typically lose the most money when loss-chasing, so we need to understand what triggers this. On regulated online sites, we should be able to design the software to flag this point.

Near misses: not constantly losing but constantly nearly winning - increases intention to continue and time spent gambling In North America, casinos are allowed to create perception of more near misses than is statistically likely Real near misses recruit the win areas of the brain, which is why they promote more gambling play.

Research shows that near-misses are less pleasant but far more motivating (entrapment?) The effects of near misses are more extreme for those gamblers who erroneously feel they have more control. Many countries do not allow the clustering algorithm that creates near-misses – could agitate for regulatory changes in Canada and the U.S.

Gambler’s fallacy: belief in a negative autocorrelation when random - some correspondence between lab and casino-based research. Hot hand: belief in positive autocorrelation when random - lab studies show this, but field evidence shows sports bets and lottery sales are weaker after wins. For some casino table games, more evidence of hot hands beliefs.

Might conclude that teaching gamblers about the laws of probability and small samples would reduce these irrational behaviours, but not the case. Education about gambling odds may improve consumers’ overall knowledge, but that knowledge is not activated or used in a casino setting. Conclusion: education about the stats of gambling is likely wasted effort.

“Please gamble responsibly” makes little sense without a definition of what responsible gambling would look like The truth is many responsible gambling interventions come too late Although not all gamblers who begin gambling as teenagers become problem gamblers, most adult problem gamblers began their gambling as teenagers

Education about the potential problems of gambling needs to come early, such as through schools or parents. A focus on family interventions would also address the normalization that occurs when children grow up with gambling parents. This will become more important as access increases via online, and gambling becomes a more “normal” leisure pursuit.

Greater availability to gambling opportunities is a key risk factor for problematic gambling. The chance of being a problem gambler, as opposed to never having tried gambling, increases 39% for each additional type of legal gambling available in one’s home state. Problem gambling percentages are much higher for Internet gamblers.

Horse is out of the barn, so to speak – prohibition won’t work. So… Education could focus on making people aware that literally anyone can develop a problem. Walk the line between offering online games, but cautiously Brewing concern: the advertising of online gambling (that will likely accompany the launch) could trigger craving. Access is instantaneous. We ban ads for cigarettes and liquor – why not online gambling?

Taxes on gambling help fund education Casinos provide employment Casinos provide a venue for social connections

Research Methodologies – lab vs. field Gambling Populations – problem vs. recreational The Online “Frontier” – unique aspects, regulatory vacuum