The Demand for Unfair Gambles: Why Illegal Lotteries Persist

Desiree Desierto, John Nye and Jema Pamintuan
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John Nye: Economics Department, George Mason University
Jema Pamintuan: Ateneo de Manila University, School of Humanities

No 201103, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: We show how cheating in illegal gambling can be sustained in equilibrium, even when gamblers are aware of it. Not only is cheating profit-maximizing for operators, but it can also be utility-maximizing if it provides gamblers the opportunity to engage in other related activities that generate non-monetary rewards, such as practicing superstitions. This, in turn, suggests why legalizing gambling might not fully capture the gains from the illegal market-operators and gamblers both prefer cheating, but this would be harder to hide in a legalized environment. We illustrate the model, generate results, and verify them empirically, using the example of jueteng, an illegal numbers game in the Philippines.

Pages: 31 pages
Date: 2011-05
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Published as UPSE Discussion Paper No. 2011-03, May 2011

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