Rational and Gambling

On a typical Friday night in Las Vegas the casino floor is at capacity. Hundreds, even thousands, of excited players peek at their cards, roll dice, spin slots, and most importantly, make bets. Gambling is almost undoubtedly irrational. The odds are rigged in the casino’s favor, and while the potential rewards can be great, the chances of winning are often low. So why do so many people risk their hard earned money on potential outcomes that have such low chances of happening?

            In theory, making the rational decision not to gamble using Expectancy-Value Theory is simple. All one must do is assess the potential winnings of their preferred game and multiply this figure by the chance they will win to come to an overall net value of playing. One popular slot machine, The Jack in the Box, offers players a one in 250,000 chance of winning $37,000. These odds result in a net value of only about 15 cents per spin, ten cents less than the 25 cents it costs gamblers to play the game. It would only seem rational that people would decide not to play this game due to the net loss incurred each time they play. To explain why individuals choose to gamble we can look to the failure to adhere to the three key assumptions of Expectancy-Value Theory.

            First, it is assumed that all things are valued using universal units. In the case of gambling, the clear choice of units is money. Every time a bet is placed, both the potential loss and the potential gain can be valued in a dollar value. However, there are confounding variables to this simple value system. Gamblers may not be gambling for the sole purpose of gaining money; they could be playing for entertainment, as part of a social event or could have a gambling addiction. All these factors contribute to the value of gambling, yet are not valued monetarily. While money can be easily be valued using a dollar value, the emotional and social benefits can be hard to quantify.

            Second, it is assumed that individuals considering possible action possess perfect knowledge. Possessing perfect knowledge includes the chances of an outcome happening, the value of each outcome, and the ability to assess each outcome. In the scope of gambling, possessing perfect knowledge means individuals understands their chances of winning, the value of the winnings and their other options for spending their money both inside and out of the casino. Unfortunately, this is not the case as many players simply do not understand their odds of winning or do not take them into account, instead choosing to focus on the potential prize money. Additionally, players do not have the time, desire, or ability to compare all possible options. Vibrant lighting and loud noises in casinos are inherently fascinating and make it more difficult for individuals to apply the directed attention needed to assess all options accurately.

            Finally, a rational actor makes the decision to choose the course of action that yields the highest value outcome. However, it can clearly not be assumed that actors always want to maximize their value. Are humans simply irrational beings or are there ulterior motives that supersede rationality and impact our ability to make rational decisions? If so, what other factors could compel someone to throw rationality into the wind?