Planned Versus Actual Betting in Sequential Gambles
Published 6/1/2009
Author: EDUARDO B. ANDRADE and GANESH IYER
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From Hollywood to Dostoyevsky, people have been frequently exposed to stories in which gamblers have lost a blouse, a house, and sometimes, as a result, a spouse on the gambling table. Moreover, given the growth of the industry—from casinos to Internet gambling—the size and scope of the phenomenon may well have increased exponentially in the past decades. In the early 1980s, casinos in the United States were concentrated mainly in Nevada and New Jersey. By 2006, however, 37 states had at least one commercial, racetrack, or tribal casino available. Consumer spending increased in every single state in that same year as the expenditure bar hit its all-time high—$32.5 billion. Americans spent more money in commercial casinos than they did on books ($16.1 billion) and movie tickets ($12.3 billion) combined. It is estimated that more than a quarter of adult Americans visited a casino in 2006. Notably, if the anecdotes are true, it is likely that many such visitors may have ended up spending more than they had initially planned.
The authors address this matter in an experimental setting in which participants are exposed to sequential and fair gambles in a two-stage process (planned and actual bets). To control for the impact of learning, participants were provided with a scenario in which (1) there was full information about the characteristics of the gambles before the planning phase, (2) the period between the planning and the actual phases of the gambles was short, (3) they believed that their plans would be executed, (4) and a reminder of the planned bet showed up right before they made their actual bet. To make the experience close to what a person would observe in an actual casino, participants experienced a time delay between bets and outcomes (i.e., an X sign flashing on the board for 15 seconds), bet their own participation fees and were free to decide on whether and how much (within a certain range) they would want to bet in any of the gambles.
Three main findings emerge across the experiments. First, in the planning phase, people behave conservatively, betting less after an anticipated loss and the same amount after an anticipated gain. Second, when offered the unexpected choice to change their bet during the actual phase, there was a remarkably systematic and robust pattern of deviation from the plan. After a loss in the first gamble, people in Gamble 2 bet significantly more than they had initially planned, while after a gain in Gamble 1, no differences from plans were observed on average in Gamble 2. In short, asymmetric deviations from the plan emerge in a sequential and fair gambling scenario. To explain this effect, the authors propose that people might be underestimating at the planning stage (before the outcome is experienced) how much their actual negative emotions will influence subsequent decisions. In consistency with this proposal, the authors show that positive deviations in Gamble 2 happen more frequently among those who, at the planning stage, underestimate the intensity of negative emotions after a loss in Gamble 1 (Experiment 2). Moreover, deviations from the plan after losses go away when a pleasant delay is placed between gambles (Experiment 3).
Biography
Eduardo B. Andrade is Assistant Professor of Marketing in the Haas School of Business at the University of California, Berkeley. He received his PhD in Marketing from the University of Florida. His research focus on how emotions influence consumer behavior. He was a scholar at the Center for Advanced Studies in Behavioral Sciences at Stanford University and Young Scholar at the Marketing Science Institute. He has published in Psychological Science, Journal of Marketing Research, and Journal of Consumer Research.
Ganesh Iyer is Edgar F. Kaiser Professor of Business Administration in the Haas School of Business at the University of California at Berkeley. He received his PhD in Management from the University of Toronto. His research interests include coordination in distribution channels, competitive strategy, Internet strategy, customer information markets, and the effects of bounded rationality on markets. He is an area editor at Marketing Science and an associate editor at Quantitative Marketing and Economics and is on the editorial review boards of Journal of Marketing and Review of Marketing Science.
J Marketing Research, Volume 46, Number 3, June 2009
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