Do consumers gamble to convexify?

Thomas Crossley (), Hamish Low and Sarah Smith

Journal of Economic Behavior & Organization, 2016, vol. 131, issue PA, 276-291

Abstract: The combination of credit constraints and indivisible consumption goods may induce some risk-averse individuals to gamble to have a chance of crossing a purchasing threshold. This idea has been demonstrated theoretically, but not explored empirically. We test this idea by focusing on a key implication: income effects for individuals who choose to gamble are likely to be larger than for the general population. Using UK data on gambling wins, other windfalls and durable goods purchases, we show that winners display higher income effects than non-winners but only amongst those likely to be credit-constrained. This is consistent with credit-constrained, risk-averse agents gambling to convexify their budget set.

Keywords: Lotteries; Income effects; Consumption; Durables; External validity (search for similar items in EconPapers)
JEL-codes: C18 D12 D81 E21 L83 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268116301585
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Do Consumers Gamble to Convexify? (2013)
Working Paper: Do consumers gamble to convexify? (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:131:y:2016:i:pa:p:276-291

DOI: 10.1016/j.jebo.2016.07.023

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().