Dangerous Games: The Psychological Case for Regulating Gambling

Abstract

The gambling market is growing rapidly, as is the number of gambling addicts. This is fueling the call for changes in regulation. Some regulators intend to enable the entertainment industry to fully harvest a market potential magnitudes larger than today’s gaming market by minimizing regulation. Others aim at further limiting games to reduce pathological gambling and to enhance consumer protection. Current legal doctrine subjects a game to restrictions if chance, rather than skill, is its predominant trait. This rests on the assumption that only games of chance are harmful. As our experimental study shows, this is wrong: if a notion of skill seems relevant for a game, players fall prey to psychological biases that are breeding grounds for addiction and economic exploitation. We therefore suggest to abandon the distinction between skill and chance, and to condition regulation instead on the psychological biases a game induces, i.e. on the danger it actually poses.The empirical part of the argument focuses on sports bets which are among the set of particularly controversial games, as there is contention whether skill or chance dominates the performance of bettors. Recent academic papers and court decisions argue that such games are properly categorized as games of skill, and as such should not fall afoul of current gambling laws. We show that, empirically, skill does have an — albeit extremely limited — impact on performance. However, the participants’ general assumption that skill does matter for performance makes them suffer an illusion of control and overconfidence, that as has been established in clinical research makes them highly vulnerable for excessive betting and pathological gaming behavior. We therefore suggest to subject sports betting to regulation.