The Hazards of Gambling

Stephen H. Unger

May 21, 2013

Gambling is an activity that some people are willing to pay to engage in, and others are willing to pay to avoid. Often the same person may do both under different circumstances. One might place a bet on a horse race, and also pay an insurance company to avoid the financial risk (gamble) associated with one's house burning down. There are those whose enjoyment of a major league baseball game is greatly enhanced if they bet on the outcome. Others ardent fans would not even think of betting on a ball game.

Some sports, such as horse racing, are inherently associated with gambling. Not many people go to a race track without betting. Gambling is an integral part of some games, particularly poker and blackjack.

In the not so remote past, there were strict laws that prohibited almost every form of gambling, including such activities as small stakes card games among friends. Most of these laws have been repealed, but some remain. Are there effects of gambling that justify legal constraints? Let's consider what these might be, and what kinds of laws might be appropriate.

Recreation versus addiction

Gambling is clearly a matter of personal preference. It has a lot in common with consumption of alcoholic beverages. For most people, there are no problems with an occasional drink. Many enjoy the resulting mild high; others do not. Similarly, many people enjoy making occasional modest bets on a horse or an athletic event, or enjoy low stakes poker games with friends.

Another parallel is the possibility of addiction in both cases. There are roughly 15 million alcoholics in the US; people unable to take even a single drink without spinning out of control and endangering themselves and others. Gambling can also be addictive, and, tho not as serious as alcoholism, it can ruin the lives of the addicts and their families. The set of problematic gamblers constitutes a continuum ranging from addicts down to those with habits less serious, but bad enough to adversely affect themselves and their families to a significant extent.

An interesting sidelight is that there is evidence that certain medications can lead to gambling addiction [Lovgren].

Who profits?

Obviously, owners of gambling casinos and other gambling related businesses, bookmakers, and, to a lesser extent, their employees, benefit financially from the money spent by gamblers. Perhaps more important is that many states (all but seven) run lotteries as a way to procure added income without imposing taxes. Many charities and churches, raise funds via lotteries or games such as bingo.

Hundreds of thousands of people have jobs directly or indirectly associated with gambling, e.g., at race tracks or casinos. There is a lot of fuzziness about the number, since it is not clear whether to include, e.g., those working as dish washers in a restaurant located in a casino.

The big losers

Clearly the biggest losers are the gambling addicts, those who, once they start gambling, are unable to control themselves, and stop only when they run out of money [Reuter]. Their lives are generally ruined. Many commit crimes to obtain gambling money, their families are devastated, and a disproportionate number commit suicide.

In other cases, people, while not qualifying as addicts, spend excessive amounts on gambling, to the detriment of their own well being and that of their families. Apart from the direct loss of money, which inevitably accompanies long term gambling, problematic gamblers devote so much time and energy to gambling that their earning capacity is substantially diminished. Those who start gambling as teenagers are particularly likely to become addicted.

Another category of prime losers are the many people at the bottom of the income scale who are lured into regularly buying lottery tickets, often skimping on necessities of life in order to so. In general, pathological gambling is a problem at all income levels.

Types of gambling

Card games, primarily blackjack or poker, dice games, roulette, and slot machines are all available in casinos. Bingo games and lotteries are often used as fund raisers by organizations, including churches and governments. Betting is often via parimutuel systems at racetracks, off-track betting parlors, or with bookies. A form of lottery, popular in poor neighborhoods, is the numbers game.

In contrast to its role in raising capital for business enterprises, the stock market also serves as a high stakes casino. There are people who, operating from computer terminals, execute trades at a dizzying rate, sometimes with the aid of computer-implemented algorithms. Buying stocks on margin, i.e., with a portion of the price borrowed from the broker, further accelerates the rate at which one can win or lose money [Investopedia].

Many other forms of gambling are also now available on line [Caffrey]. This includes almost all the gambling games listed above. A basic property of these applications is that they make gambling very convenient; one can lose a lot of money very fast.

The law

Laws regarding gambling vary greatly from one jurisdiction to another, and over time. During the 19th century most forms of gambling were illegal (I am considering only the situation in the US), altho the laws were widely violated, particularly in the West. There have been ups and downs since then, with gambling currently on a rise.

Gambling and crime

Given the nature of the activity, including the illegality issue, it is not surprising that criminals have always been associated with gambling. One painful connection is the fixing of athletic events, which has diminished the enjoyment of many sports fans. An early example was the 1919 Black Sox scandal, in which members of the Chicago White Sox were bribed by gamblers to throw the World Series [Wikipedia].

More extensive was an epidemic of fixed college basketball games that surfaced in 1951 [Infoplease]. This involved a number of the nation's best teams, and mortified untold numbers of alumni and fans. The athletic careers of several superb players ended abruptly. Almost certainly, additional schools were involved, but not exposed.

Players were paid to ensure that their teams did not win by more than a certain margin, known as the "point spread". (In order to win a bet on the favorite, the favorite must win by a margin exceeding the spread.) Since controlling the score precisely is very difficult, efforts to win by a relatively small margin, often led to the favorites losing.

Do such things happen today? It is unlikely that major league professional athletic events in team sports are tampered with, because the athletes are so highly paid, and reliable fixing would require the involvement of a group of team members. But sports such as boxing, tennis, and golf, are more vulnerable, since only one person would have to be corrupted. College sports are another matter, as amateurs are likely to be tempted by smaller bribes, and there is already significant corruption, e.g., in the form of giving some star athletes passing grades for sub-par academic performance.

The motivation for corruption is certainly strong as it is estimated that annual sports betting in the US is of the order of $150 billion [Drape]. A lot of money can be made by fixing the outcome of a major tennis tournament. Partly in recognition of the danger of such manipulation, many states have outlawed betting on sporting events.

Trade-off

It was pointed out above that simple games of chance are often used to raise money for charitable organizations. This seems to be a benign activity. It helps promote some worthy cause, and, simultaneously, entertains those who contribute. There doesn't seem to be a serious down side.

State operated lotteries [Schwartz], licensed betting parlors, etc., appear to be similar enterprises that raise funds painlessly. But maybe not.

A one-time lottery to raise money for renovating a school gymnasium, or repairing the roof of a church is not likely to cause any individual to go into debt, or to become addicted to gambling. But the same can't be said of a state lottery operation, with daily payoffs from drawings ranging from less than a hundred dollars to many millions of dollars [Kramer].

This is a situation where the public at large, i.e., most of us, benefit at the expense of problematic gamblers, who constitute a small minority of the population. At one end of the spectrum of problematic gamblers are those who combine poor judgment with weakness in the face of temptation, to the point where they spend so much on lottery tickets that they deprive themselves and their families of funds needed for important purposes. At the other end are addictive gamblers whose destructive behavior closely resembles that of drug addicts.

It is important that, while many, perhaps most, people could become heroin addicts, a person who never tries heroin will never become addicted to it. The same is true of gambling (altho I suspect that the number of potential gambling addicts is less than the number of potential heroin addicts). There are various estimates of the proportion of the population who are, to some degree, problematic gamblers. Something like 4-5% (perhaps 1% full blown addicts) seems to be the number, with indications that it is significantly larger for teenagers. But I haven't seen estimates of the proportion of potential problematic gamblers.

So state sanctioned, or operated, gambling provides benefits in the form of somewhat reduced taxes for everyone, and some pleasure for those who like an occasional fling. The cost is the exposure of a small fraction of the population to the above-described hazards of gambling.

Question

Is it morally acceptable to expose a small fraction of the population to the risks associated with becoming addicted to gambling, and a larger, tho still small, segment to lesser harms associated with excessive gambling, in order to improve state finances modestly, and to give the general population the opportunity to gamble conveniently? It might be helpful to make the question a bit less abstract by filling in some plausible numbers.

Consider the state of New Jersey, whose population is a little under 9 million. Assume 1% (90,000) are gambling addicts and 5% (450,000) are problematic gamblers. Further assume (and this is more speculative) that the number of potential addicts, not yet addicted, is also 1%. I.e., that there are as many potential, not yet addicted, gamblers as the number already addicted. And make the same assumption for problematic gamblers, i.e., that the number of those vulnerable, but not yet active is the same as the number already in trouble. So we might imagine that there are in NJ perhaps 90,000 active gambling addicts and 90,000 additional people who would become addicts if they started gambling. Similarly, we might reasonably guess that the existing 450,000 problematic gamblers might be joined by another 450,000 if they were to start placing bets or buying lottery tickets.

Now assume (another guess) that, annually, 10% of these vulnerable people succumb to ads for NJ gambling games and thereby become problematic gamblers. The result would be 9000 new gambling addicts and 45,000 new problematic gamblers in the state every year. (Also, some portion of the existing gambling victims would be exposed to strong temptations to continue, and perhaps expand, their habits.)

These numbers might easily be off in either direction by a factor of say, 3. The big question is, "Would providing substantially greater gambling opportunities to NJ residents, and modestly reducing the state tax burden justify adding thousands of people to the ranks of gambling addicts, and many more thousands to the ranks of those suffering from lesser forms of gambling pathologies?" Bear in mind that, for each problematic gambler, there are often close family members, including children, who suffer as well.

What should be done?

Suppose pathological gambling did not exist, and nobody was ever tempted to spend more then they could afford on betting, etc. Then the worst that one could say about gambling would be that it is a waste of time and energy, and perhaps that some people spend somewhat more than they should on that activity. There would be no more justification for laws restricting gambling than there is for laws against excessive television watching.

But there are a lot of people vulnerable to gambling pathologies, some extremely serious, and this, I believe, calls for recognition by our legal system. It does not seem right to allow people to systematically profit by exploiting those suffering from gambling pathologies. The idea of governments, at any level, actively promoting gambling, licensing casinos, operating lotteries, and advertising gambling games ("Hey you never know"--motto of NY State Lottery), is particularly repugnant. Apart from simple moral considerations, it does not make sense to raise money via methods that are going to cause large numbers of people to become addicts, many of whom, along with their families, will then become costly public burdens.

Our laws should be designed so as to minimize opportunities for problem gamblers to gamble, while allowing others to engage in moderate, non-commercial gambling. Laws should not penalize individuals for gambling, whether in private groups or via casinos, bookmakers, etc. Penalties should be reserved for those who operate commercial gambling facilities. Charitable organizations, churches, etc., should be free, as they are now, to organize games of chance to raise funds, tho they should not be permitted to become fronts for casino operators.

Individuals who wish to gamble should be free to organize card games, or other such activities, among acquaintances. It might be feasible to allow parimutuel betting at race tracks, with bets limited to small amounts (perhaps not exceeding $20 each.) Commercial, or government operated, off-track betting facilities should not be permitted.

References

Michelle Caffrey, "Online gambling in NJ raises concerns for compulsive gamblers with 'hidden addiction'", South Jersey Times, March 10, 2013

Joe Drape, "Web Site Puts Focus on the Fix in Sports Bets"NY Times, May 25, 2008

Infoplease.com, "1951 College Basketball Recap"

Investopedia, "Margin Trading: Introduction", Investopedia

Brent Kramer, "The New York State Lottery: A Regressive Tax", State Tax Notes, March 29, 2010

Stefan Lovgren, "Compulsive Gambling, Sex Linked to Parkinson's Drugs", National Geographic News, July 12, 2005

Andrea Reuter, "Gambling Addiction Facts & Stats", Livestrong.com, May 9, 2010

Nelson D. Schwartz, "The $50 Ticket: A Lottery Boon Raises Concern", The New York Times, December 27, 2007

Wikipedia, "Black Sox Scandal", Wikipedia

Comments are welcomed and can be sent to me at unger(at)cs(dot)columbia(dot)edu

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