Do consumers gamble to convexify?

Sarah L Smith, Tom Crossley, Hamish Low

Research output: Contribution to journalArticle (Academic Journal)

1 Citation (Scopus)
420 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)276-291
Number of pages16
JournalJournal of Economic Behavior and Organization
Volume131
Issue numberPart A
Early online date31 Aug 2016
DOIs
Publication statusPublished - Nov 2016

Keywords

  • Lotteries
  • Income effects
  • Consumption
  • Durables
  • External Validity

Fingerprint Dive into the research topics of 'Do consumers gamble to convexify?'. Together they form a unique fingerprint.

  • Cite this