Friday, April 6, 2012

She Sewed My New Blue Jeans

Take the spectrum of gambling activities: on one end, sordid back-alley dice, cockfighting, pool hustling and mob-run numbers rackets. On the other end lie state-operated lotteries, church raffles, gentlemen's wagers and NASDAQ. Betwixt would be office fantasy football leagues, casinos, InTrade, OTB, Jai-Alai et al.

The sordid sorts of gambling (dog fighting for example) could be objectionable because of the context of the contest: it's cruel to force animals to disfigure or kill each other for sport (naturally, this presumes quite a bit about an implied counterfactual state of the world, but let's leave that alone for now). Other forms may rely on other analysis. Consider the following arguments:

  1. Gambling acts as a transfer scheme that moves wealth from stupid (and usually poor) people who don't understand the laws of probability and expected value calculations well enough to make informed decisions. This implies paternalist responsibilities to prevent disadvantaged people from being fleeced.
  2. Allowing low-status people to collect producer surplus in a gambling market is objectionable. The mafioso who run numbers are collecting rents rather than producing useful services. It might be fine for the state to collect lottery earnings since those will be used to provide essential public goods, but the Don will just spend it on lavish wedding receptions for his daughters.
  3. Gambling is dynamically inefficient. Instead of building human capital, players will forgo the acquisition of work skills to blow their meager paychecks on a sliver of hope for striking it rich. This is another pinion in the engine of poverty.
  4. On this point, I owe consideration to my friend and colleague Tom Duncan. There is a non-trivial probability that people find certain types of gambling objectionable based strictly on their explicit legal status. Some gambling markets are wrong just because the legislature says so.
  5. Gambling varies by social class and wealth. The rich can gamble to their hearts' content since their BATNA might imply not being able to take that vacation to the Bahamas this year, but for poor folks, it means the baby won't get formula this week.
Of all these, #4 is both the most preposterous and the most plausible. It's preposterous because it suggests that folks don't give much consideration to their beliefs and it's the most plausible because, well, people probably actually don't give much consideration to their beliefs. It can be mentally efficient to outsource morality to elected officials. Some of the recent Public Choice work supports this notion (see, eg The GTM's recent JEBO article, Persuasion, Psychology, and the Future of Public Choice {sorry, I can't find an ungated link. If you have access to JSTOR then check there, otherwise there's a possibility the author may be willing to send you a copy}).

At any rate, there's a curious question in there somewhere. What are the elements of games of chance that make one gambling scheme acceptable and another not? What is the role of local knowledge and morality that explain geographical and cultural variance? Can gambling ever be truly euvoluntary?

The Tracy Chapman version of this song is even better, by the by.

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Do you have suggestions on where we could find more examples of this phenomenon?