Title: Casino gambling: the economics and the sociology
CITATION PDF VIEWER THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/CA00400257/00001
 Material Information
Title: Casino gambling: the economics and the sociology
Physical Description: Book
Language: English
Creator: Monograph
English ( Contributor )
Jones-Hendrickson, S.B. (Simon B.) ( Contributor )
Publisher: Caribbean Studies Association
Publication Date: 2001
 Subjects
Subject: Caribbean   ( lcsh )
Spatial Coverage: North America -- Caribbean
Caribbean
 Record Information
Bibliographic ID: CA00400257
Volume ID: VID00001
Source Institution: Caribbean Studies Association
Holding Location: Caribbean Studies Association
Rights Management: All rights reserved by the source institution and holding location.

Downloads

This item has the following downloads:

PDF ( PDF )


Full Text





CASINO GAMBLING: THE ECONOMICS AND THE SOCIOLOGY





S. B. JONES-HENDRICKSON*
Professor of Economics
University of the Virgin Islands
St. Croix, USVI 00850
e-mail: sjonesh@hotmail.com













Paper presented at The Annual Caribbean Studies Association Conference, St. Martin,
Netherlands Antilles, May 28-June 2, 2001







ABSTRACT:

This paper is essentially a methodological analysis of the underpinnings of casino
gambling or casino gaming from the perspective of the Economics and the Sociology
involved. It is a thought piece for those who have the desire to play the game. It is
designed to highlight some methodological issues at a time in the region when the region
is now looking towards this form of entertainment as a tourist attraction. But, it is
presented, also, because local consumption of casino gaming is widespread. On the
whole, casinos are designed to attract tourists. Casinos are linked with hotel building. But
only some of these features are real. Many of the patrons of casinos in the region are
locals. And the many hotels that should come with the casinos do not materialize.












INTRODUCTION

Over the last ten years, and certainly within the last five years, many Caribbean
countries have been trying all kinds of ways and means of generating revenues. Many
countries now have lotteries. Several have casinos. It is believed that casinos and lotteries
can provide quick money. This quick, easy money is sometimes stratified along the lines
of the rich. The rich play the stock market and the not so rich play casino, whe-whe and
the lottery.
In the USA, according to estimates of Lyle Stuart (1996:13), "More than 90
million people visit casinos each year. ...Casinos are proliferating so fast that it is
estimated that by the year 2000, 95% of all Americans will live within a three-hour drive
of a (casino). Given the past behavior in the region as it relates to things USA, we are of
the view that if people in the region see something happening in the USA, sooner rather
than later, the leaders will contend that if it is working in the USA, it could work in the
Caribbean. In the Caribbean, casino and other non-traditional type financing are taking on
a momentum of their own.
In this paper we wish to focus on a methodology of casino gambling as a far-
fetched type of investment with quick, almost instantaneous returns or losses. The
rationale here is to highlight that there are some societal means of making money in the
casino, but also, we wish to demonstrate that there are some risk-rewards features that
must be taken into consideration when one plays in a casino. Our focus will be on the slot
machines at the casino, as opposed to other games. Our reason for doing this is to capture
the most popular type of play, for the ordinary player, at the casino. Our observations
have come from having played in casinos all over the Caribbean as well as in Las Vegas,
Detroit and Iowa.
Casino gaming is nothing more that a short-run, instantaneous application of a
stock market type behavior. But while there are rules and regulations in the stock market,
in the casino market, the rules and regulations are of your own making, your risk profile,
you addictiveness or non-addictiveness, your capacity to discipline your self, and the rest.
What are some of the useful ideas both from an economic and sociological
perspective that ought to be taken into consideration? First, it must be realized that the











objective should be to enjoy the game. Casino gaming is not like the stock market in one
perspective. In the stock market, investments permit one to appreciate that the greater the
risks, the greater the return. In the casino market, that is not the case. Why? Because you
lost one hundred, that does not mean if you spend another one hundred you will get back
your money or that you will win anything. Our objective is not to tell you or show you
how to win at the slot machines. Nobody knows how to win or beat slot machines, unless
they understand and know all of the permutations of the random generated numbers of
the slot machines. And since that is impossible, nobody can tell you the real odds. Some
people have calculated odds. For example, it has been established that there is a one in
twenty-two chances that a person will win at slot machine. (Stuart, 1995).
It is important to know that when you put your money in a slot machine, you have
two possibilities: you win something, or you loose you money. At any one time, the
probability is 50:50. However, what you win is not in direct proportion to what you put
in. What you could win may have some bearings on the denominations of the machines
and on the combinations on the machines.
Let us explain. Your knowledge of the various winning combinations is limited.
Hence there is an asymmetric information base. Your knowledge of the payout ratio is
limited; here again, there is asymmetric information. Whenever there is asymmetric
information, the odds are always in favor of the person who controls or manipulates the
information. Hence the institutional strictures that are imposed on you are enormous
when it comes to what you may win. It is very clear, however, that you are guaranteed to
lose money when you play. From all of our observations, the house has the upper hand.
Some research shows that casinos have a 10% edge in slots. (Stuart, 1995:5). From
some literature, it suggests that the house gets 90 cents out of every dollar played in the
slot machines. In some Caribbean casinos, those where the regulations may not be strictly
adhered to, the payout ration may be lower that 90 percent.
How do you play with some semblance of getting some returns? It is our view,
that a person who engages in casino gaming is seeking capital appreciation and capital
preservation. If they had invested in the stock market, they would have added current
income to these two objectives. When a person plays one dollar to win $10,000 or $3 to
win $10,000, these high odds should be explained and the payout ratios should also be











explained. The casino time frame is short, and almost instantaneous. If "luck" is in your
favor, you win. If luck is not in your favor, you will not win. Luck, however, is uncertain.
Unlike the stock market, the "investment" in the casino, all vanishes if the
investor-player loses his investment. Capital is not preserved in the loss. Note, however,
that there is a similarity here to companies that go bankrupt. Except for those who own
preferred shares, the owners of common stock could get nothing or cents on the dollars of
their investment. This marginal similarity is an important informational base on which to
advice the public that risk and rewards are inherent in both the stock market and the
casino market.
Casino owners have a monopoly over some information. They do not freely pass
on the full knowledge of the risks associated with casino gaming. This monopoly of
information, particularly the non-dissemination of the ideas, is asymmetric information,
to cite Nobel Laureates William Vickrey and James Mirlees.
All in all, informational asymmetries are at the heart of this problem of casino
gaming as it pertains to slot machines or "one-armed bandits" as they are aptly called.
What, therefore, must be done to narrow the gap between the perception and the reality of
casino markets? How can people feel less apprehensive about playing slot machines?
What could be done about the inadequate informational flow? What must be done about
asymmetric information?
Casino playing, for instance, particularly the lower level "slot machine," or "one-
armed bandit," is nothing more than an attempt of an individual to benefit from capital
preservation and capital appreciation. If a person goes to a slot machine and plays $20, on
a machine that has as its highest payout, $1,000, what the person is doing is "investing"
with the hope that a return of 5000% is possible. In the normal scheme of things,
however, the probability of that person hitting the jackpot is so low, that the jackpot may
not be attained in one in a million times. If, however, the person wins $20, $100, or some
other play, and did not hit the required 777 on the slot machine, that person would have
achieved some of his expectations, namely, some level of capital appreciation and capital
preservation. Furthermore, the person would have achieved his or her rewards over a
relatively short period of time, maybe ten minutes, an hour or more, depending on the











time the person wants to invest in the game. It may be that the electronic timing of the
machine was such that the person was lucky.
On the other hand, if the person loses all of his $20 and more, then capital loss,
loss of principal, is the feature he has to contend with. His winning or losing may have to
do with the alleged timing of when he went to play the machine. Nobody can say, for
sure, that a casino will play at five o'clock on Saturday after many persons have played.
The fact that the machines are preset, electronically, to have a certain
payout, is the fundamental issue at hand. That information is vital. That information
should be told to patrons who play casino. In some cases in the region people know, up
front, what the payout is on lotteries. The same should apply to casino.
In the stock market, there is much ado about timing. There is an old adage, in the
equity market, that the only timing that is relevant is not the timing of the market, but
rather the time in the market. A shrewd, non-addictive, casino player will play for a
certain time or play a certain amount and will stop playing if he wins or loses. In fact, in
instructions on playing slot machines, it has been said that a winner should put aside 75%
of the winnings and play the remaining 25%. When this 25% is lost, the person should
stop playing. Since a slot-machine player is playing against very low odds, the person
should quit while they are ahead. The reality is, however, many persons who play the slot
machines play with view of winning the "big one."
The slot machines person, the lottery person, and so on, focus on capital
appreciation. The lottery player plays one dollar to get back one million dollars. The slot
machine player plays two dollars to win $5,000 or three dollars to win $10,000.
All things being equal, the traditional ways of describing peoples' attitudes
toward risk are the underlying features that characterize who invests in stocks and who
invests or plays the slot machines. People can be risk-averse, risk neutral and risk
lovers. Risk adverse persons are those who want more than a fair odd to accept a bet.
This would be like someone who invests in the stock market with a portfolio of "blue-
chip stocks. A risk-neutral person is one who is not concerned with risk. This person is
only concerned with the average payout. This investor is not concerned if there is a small
chance of catastrophic ruin or a small chance of gigantic payoffs. [Fischer and
Dornbusch, 1983: 477].











This risk-neutral person would play casino slot machine or one-armed bandit and
think nothing of losing. Finally, the risk-lover is a person who thrives on risk. As Fischer
and Dornbusch (1983:478) note, this person "pays to have the privilege of taking bets that
are stacked against him." Here, too, casino gaming slot machine play falls in this
category.
Given the social fabric of the people, it may be possible to galvanize a scenario
that clearly delineates the odds of winning at the slot machine, or any other form of
casino gaming. First, it must be clearly stated that success in the pass on a machine does
not guarantee continued success or future success. And yet, there is a high probability
that if you play one machine, for periods of time, you have some chances of winning
something. You may not win back your money. You may win something, or you may
loose everything. It is worth repeating: Success in the pass is no guarantee of success in
the future.
More people should know more about the nature of the games of chance in the
casino market. And if they are playing the slot machines, the one-armed bandit, on which
we are focusing, they should be advised before hand, what are their chances of winning.
The odds should be clearly outlined. The playing field should be level.
If the asymmetric information continues to be at play, then how can one play the
slot machines and win something? How can one set targets to win? What strategy should
be used to "reap" some rewards?
First, people who play the slot machines must know that it is best not to assume that
every time you play your coins, you are going to win. Second, you have to develop a
strategy to win something based on what you play. It is recommended by some people
that whatever amount you play on a given machine, you objective should be to get back
at least half of your money in winnings. Note we said winnings. We did not say profits.
This suggests that if you play, $20, you should try to get back $10. If you play $100, you
should try to get back $50. In other words, set your target and stick to your target. What if
you played $100 and the machine on which you are playing does no give you back the
expected $50? Then it is suggested that you move to another machine. Why? Remember
that you are playing in the casino. You are not playing that machine only. Societal
trappings may suggest that you stick to one machine, because it is your lucky machine,










your favorite or some such other societal wishful thinking. The fact is, if you won on a
machine in the past, there is no guarantee that you will win on that machine in the future.
An if you see someone win on the machine, there is no guarantee that you will win on the
machine. Slot machines are programmed. They have a random access memory chip. A
random number is generated to put forth sequence of payment. Because your friend next t
you won a few times, that does not mean that your machine will play.
So what should you do? It is recommended that if three machines require three
quarters, two dollars or three dollars to play them play those amounts. Always play the
maximum amount. When the maximum amount is played, the odds are that if a payout
is made, you will get the maximum returns, if you have the combination leading to the
maximum. To put it in a nutshell. If a machine requires three dollars be played to win
$10,000, you should play the maximum all times. For some people this is a difficult
proposition. Their strategy s to play one dollar or one quarter at a time. Their rationale is,
the one-one play will permit them to play longer. That is true from a superficial manner.
There is a paradox in this extensive play approach. If your play of one dollar turns out to
generate the winning combinations of 777 or WILD, WILD, WILD, you will be giving
the company a large portion of your money. Le us say on a given machine there are the
following combinations:


Play $1.00 $2.00 $3.00
Win $2000 $5000 $10000




If you played anything less than the maximum, you would be giving the company $8,000
in the case of a $1.00 play and a winning combination win. And you will be giving the
company $5,000 on a $2.00 play and a winning combination. Now, for many one-armed
bandit or slot machine players, a $2,000 win or a $5,000 win is big money. In this regard,
they may be satisfied with the win. If that is your perspective, then there is nothing
problematic with the one dollar-one dollar strategy. On the other hand, too often those
people who claim that they are only playing one dollar or one quarter at a time, end up
playing more in total that those who play the maximum. How is this known?










People who play the maximum normally play a certain amount of money and
stop. This is another recommendation. Play money that you could afford to loose. Play a
certain amount and stop. Never play your winnings. Note, earlier, we said that out of
every $100 you should try to get back $50. Note this means that if you win $50, you have
lost $50. Here we use the term win to mean a payout from the machine. Win here does
not mean that you have net winnings of $50.
Casino players play base on a herd-type mentality investment. When someone
wins a jackpot, many persons assume that they, too, can win. In the one-armed bandit
area, when players hear and see others next to them winning, they, too, conclude that they
will win. Seldom do these optimistic people know how much the new winners have spent
to get to their winning position. In the one-armed bandit area, some machines are always
making noise. The length of the noise indicates the closeness to a jackpot. It should be
obvious in the slot market that past success is no guarantee of future success.
In the slot market arena, there is no players beware sign. Some literature on
gambling, for example Ali (1979), Figlewski (1979), Dolbear (1993) and Goodwin
(1993), indicates that the knowledge of"final odds fail to provide unbiased predictions of
the probability of various outcomes." Furthermore, as Ali (1979), Metzger (1985),
Terrell (1994) and Terrell and Farmer (1996: 846) point out, a bias such as the gambler's
fallacy influences betting patterns. The gambler's fallacy is an incorrect belief that the
probability of an event is lowered when the event has recently occurred.
In the final analysis, if you are one of those persons who have to play in a casino, if you
have to play the one-armed bandit, the slot machine, pace yourself. Give yourself a set
time to play. Move away from the machine if the machine is not playing. Move away
from smoke if smoke bothers you. Drink, if you must, but avoid drinking hard liquor.
Hard liquor tends to dull your senses, and tends to seduce you to spend more than you
plan to spend. Most casinos give free drinks, hard and soft. There is rationale to the
tender-heartedness.
The Caribbean region has many casinos: from the luxurious to the ordinary. From
the massive casinos to the tiny ones. All of them are designed to relieve you of your
money. If you are so inclined, and you have a risk tolerance, you may want to play. If you
have an addiction, you are in harm's way to yourself and to your society. Some Caribbean










governments are now tying casinos to the building of hotels. Some have used casino
money to assist in education. Whatever the good and bad associated with casino, it should
be very clear that the region and many people in the region are now caught up in this
fanfare. While governments strive to pry revenues from the casino patrons, it is
incumbent upon the same governments and or perhaps the casinos themselves, to inform
the patrons of the monetary risks, the social risks and the psychological risks of casino
gaming. In the final analysis, people have to make their own choices. But they would
tend to make informed choices, if the information is available to them. Casino gaming in
the Caribbean is here to stay. Since our people are here to stay for time, and since our
people will play in the casinos, unless prohibited by law, the states in the region should
ensure that their people enjoy the game, and not succumb to the scourges of the game.
Casino gaming could be stress relieving. The political directorate and the owners of
casinos should be implement programs to minimize the stress-inducing aspects of casino
gaming.


REFERENCES


Ali, Mukhtar M. (1977). "Probability and utility estimates for racetrack bettors." Journal
of Political Economy, vol. 5 (4), pp. 803-15


Dolbear, F. Trenery, (1993). "Is racetrack betting on exactas efficient?' Economica, vol.
60, pp. 105-11.


Figlewski, Stephen (1970). "Subjective information and market efficiency in a betting
market." Journal of Political Economy, vol. 87, no. 1, pp. 75-88.


Fischer, Stanley and Rudiger Dornbusch (1983), Economics, New York: McGraw-Hill
Book, Company.


Goodwin, Barry in Terrell and Farmer (1996). "Semi-parametric testing of speculative
efficiency in a pari-mutuel gambling market." (mimeo.












Grinblatt, Mark, Sheridan Titman and Russ Wermers (1995), "Momentum Investment
Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior", The
American Economic Review, vol. 85, no. 5, pp. 1088-1105.


Haliassos, Michael and Carol C. Bertaut (1995). Why Do So Few Hold Stocks?" The
Economic Journal, vol. 105, no. 432, pp. 1110-29


Harvey, C. (1995), "Predictable Risks and Returns in Emerging Markets," Review of
Financial Studies, no. 8, pp. 773-816.


Jones-Hendrickson, S. B. (1994) Cross-Border Trading in the Caribbean, Occasional
Paper Series, No. 2, Regional Programme of Monetary Studies.


Jones-Hendrickson, S. B. (1995). "A Caribbean Stock Exchange and the Internet."
Annual Monetary Studies Conference, Basseterre, St. Kitts, November 8-11.


Stuart, Lyle (1995), "What Casinos Don't Want You To Know," Bottom Line Personal,
vol. 16, no. 21, pp. 13-14.


Terrell, Dek (1994). "A Test Of The Gambler's Fallacy: Evidence From Parimutuel
Games," Journal of Risk and Uncertainty, vol. 8, pp. 309-17.


Terrell, Dek and Amy Farmer (1996). "Optimal Betting an Efficiency in Pari-mutuel
Betting Markets with Information Costs," The Economic Journal, vol. 106, no. 437, pp.
846-868.











FOOTNOTES


1. Slot machines players, for example, should know that because two sevens played
on a previous spin, it does not follow that three sevens will come on a subsequent spin.
Likewise, stock market investors should know that because a stock
price increased today, it does not mean it will increase tomorrow, or the next day for that
matter. What goes up can and does come down.


2. Who you are is not important as what you want. Stocks may require a
larger down-payment than lottery to ensure a purchase, but it must be pointed out to all
that several small amounts of a money could be added up to buy stocks. It could also be
pointed out that several persons can combine to buy stocks, just like several persons play
lottery in a pooling system. In a word, the regional stock market should be demystified;
the regional lotto, lottery market should be highlighted and be given more financial
attributes.


3. The similarities between betting, gambling, lotto, lottery and the stock
market is a highly debated area. Figlewski (1979), for example, compares the bettor's use
of market analysis and brokerage houses. Terrell and Farmer (1996) look at "Optimal
Betting and Efficiency in Pari-mutuel Betting Markets With Information Costs."


*Professor Jones-Hendrickson is currently on leave from the University of the Virgin
Islands as the Ambassador of St. Kitts and Nevis to the OECS, CARICOM and the ACS.




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs