NCRG Conference on Gambling and Addiction

Tuesday, November 18, 2008

Analyzing the Costs and Benefits of Gambling: Cultural, Historical and Economic Perspectives

In a packed room at the Las Vegas Convention Center this morning, session moderator Alan Feldman, senior vice president of public affairs at MGM MIRAGE, kicked off a much-anticipated discussion about the costs and benefits of gambling by asking the panel why exactly it is so difficult to measure the social and economic impacts of gambling.

Dr. William Eadington, professor of economics and director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, first reminded the audience that gambling is an inherently political industry because it already is the largest industry in the world created by political processes, a fact that shades the research in this area. Eadington added that another challenge lies in the fact that there simply isn’t much research in this field because there are only a handful of researchers studying the issue.

Dr. Douglas Walker, associate professor in economics at the College of Charleston, built on Eadington’s point about the political nature of this issue, explaining that, in some ways, it makes it difficult to have good, quality research. According to Walker, politicians and policymakers have a low threshold for the quality of the research, and it seems that so long as they have some statistics to cite to show that gambling is either good or bad, they don’t have a strong interest in the quality of that information. Eadington added that this phenomenon extends to the media. He credited our “sound bite” culture and the desire to provide an easy explanation of what is an extremely complicated issue with giving a larger platform to a number of unscientific cost-benefit estimates.

Feldman asked the panelists to describe what the costs and benefits of gambling are. Walker began by explaining that there is some disagreement of what constitutes a social cost – most economists consider a social cost to be a cost which requires society to allocate resources for something when they otherwise would have been used elsewhere. In the case of gambling, this would include costs for treatment of problem and pathological gamblers, regulation and supervision. He mentioned that there is disagreement in the field about whether the transfer of wealth associated with gambling is a social cost. Walker doesn’t believe it should be considered a cost, adding that one problem with research on this topic is that people say, “this sounds like it should be a cost,” and so they decide to include it.

Regarding the costs of pathological gambling, Dr. David Schwartz, director of the Center for Gaming Research, at University of Nevada, Las Vegas, explained that while it is possible to track the life and habits of one pathological gambler, it is difficult to abstract this number out to society as a whole. He suggested instead of a cost-benefit ratio, policymakers need to view gambling though the lens of a series of tradeoffs. He said that this is a much more honest and neutral way than a lot of the numbers that are out there, but that, unfortunately, given the nature of the news cycle, people prefer to have a quick and easy number.

Eadington noted that pathological gambling is an individual cost of gambling, but that economic research tends to regard individuals as rational and self-interested. He said that future research on this issue needs to marry issues economists bring to the table with more sensitive issues from psychiatry and other social sciences.

Walker added that the benefits of gambling are easier to measure. He said they usually are measured in employment, tax revenues, and the development within complimentary industries. Ha also added that the major benefit of gambling is that consumers enjoy it and are willing to pay money for it, so why not let people spend their money the way they want to? Despite the fact that this is perhaps the largest benefit of gambling, Walker said it is largely ignored in public policy debate around gambling.

Feldman then asked the panelists what their views are of the statistics that are often used to describe costs and benefits and whether there is any veracity to them. Eadington quickly rattled off three commonly cited statistics about the costs of gambling and explained that there is no evidence to justify any of them, but they have been widely disseminated because of our sound bite culture. He added that once bad statistics are out there, they tend to take on a life of their own.

According to Walker, the fact that the cost ranges are so wide and varied indicates that there’s something wrong with research in this area. He noted that, as of yet, no one has developed a good way to measure the costs. He used the example of the losses of pathological gamblers, explaining that a lot of the existing numbers on this issue are based on self-reporting; however, several scientific studies have shown that many of these people are unable to accurately calculate how much money they lose, so the numbers are almost completely arbitrary.

Feldman then asked the panelists what advice they would give to policymakers who are seeking to understand this issue. Eadington said that pathological gambling has risen to top of public policy debate, and that he believes policy in this arena is moving toward a way to separate people who have gambling problems from those who don’t and finding a way to prevent those with gambling problems from using the product. He mentioned examples of this type of approach currently used in Australia, Singapore and China, in which governments seem to be attempting to keep gambling from “getting too big.”

Walker recommended policymakers not rely on dollar estimates because the ones that exist are unreliable. He instead suggested policymakers focus on the general issues of what the likely costs and benefits are, instead of specific dollar amounts, and more fundamental issues of what role the government has in determining how people spend their money.

Schwartz said he believes it is not the government’s responsibility to decide how much we gamble, that instead policymakers should let the market decide. He said that government has a responsibility to regulate the product and make sure the industry is fairly and honestly run, but that when government tries to regulate the supply, that’s problematic.


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