Work

Do consumers gamble to convexify?

Year: 2016

Type: article

Abstract: The combination of credit constraints and indivisible consumption goods may induce some risk-averse individuals to gamble to have a chance of crossing a purchasing threshold. This idea has been demonstrated theoretically, but not explored empirically. We test this idea by focusing on a key implication: income effects for individuals who choose to gamble are likely to be larger than for the general population. Using UK data on gambling wins, other windfalls and durable goods purchases, we show that winners display higher income effects than non-winners but only amongst those likely to be credit-constrained. This is consistent with credit-constrained, risk-averse agents gambling to convexify their budget set.

Source: Journal of Economic Behavior & Organization

DOI: 10.1016/j.jebo.2016.07.023

Authors: Thomas F. Crossley, Hamish Low, Sarah Smith

Institutions: University of Essex, Institute for Fiscal Studies, University of Cambridge, University of Bristol

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,180

Funder: Economic and Social Research Council