Do Casinos Make You Richer?
‘Gambling: a sure way of getting nothing from something’, noted Wilson Mizner, an American playwright. To illustrate, $1,089 is lost at an average Wynn Macau table game every hour of the day, which is equivalent to $18.16 every minute, according to the company’s accounts. Generating an annual revenue of over $159.7 billion, gambling boosts local economies and violates the fundamental principle of economics – that of human rationality. What is it that makes gamblers ready to sacrifice hundreds of pounds for no return?
In his Logic of Life, Tim Harford notes that when it comes to gambling, the boundary between one’s rationality and peculiarities becomes increasingly blurred – yet, if a more careful look is taken, these ‘peculiarities’ are still responses to incentives, although less plausible. According to Becker and Murphy (1988), gambling, as any other addiction, is entirely rational. Slot machine or casino players do calculate pleasure and costs of their activities. Some of them are addicted, but they had made a rational decision to start playing the machines, knowing there was a chance they would end up miserable and hooked; moreover they do make a rational decision to continue gambling and endure greater misery rather than kick the habit. However, distinction must be made between rationality and perfectibility – a gambler, carrying out cost-benefit analysis of playing slot machines, may overstate the satisfaction of another round and underestimate the long-term consequences of it. Although their reasoning may not be immediately obvious, addicts can hardly be considered helpless and led by a single desire to gamble.
John von Neumann, an author of Theory of Games and Economic Behaviour, claimed that a theory that explains gambling would explain life. Undoubtedly, there is a correlation between individual’s standards of living and her on his own choice of whether to gamble or not. According to Statista, for that reason gambling is still viewed in a negative light by 71% of Americans. However, in a broader context, is there a negative correlation between prosperity of the area and the quantity of casinos? The Economist, for instance, has noted a relationship between gambling and poverty in certain areas. The emergence of casinos in Native American reservations, for example, has pushed many locals below the poverty line. In contrast, Las Vegas and Macau are typically amongst the growth leaders in North America and Asia respectively. The divergence between areas growing poorer and prospering due to the gambling industry can be explained by the simple circular flow of income model: whereas in the Native American reservations, there are few injections and the locals’ incomes settle in the casino owners’ pockets, players at the tables of Las Vegas and Macau come from abroad, creating a substantial inflow.
However, how reliable is gambling in the long term? As an individual source of income, not at all – as any addicts, gamblers play not in the hope to grow richer, but to ensure that they can gamble tomorrow. For the economies, on the other hand, gambling proves to be one of the most fruitful growth sources. Even though Macau experienced the worst GDP plunge of 26% in history last year, it has still been close to full employment with consistently high incomes, as the decrease has mainly hit the gambling sector and shown up mainly in the books of Macau casino owners. As such, refuting Mizner’s moralistic statement above, gambling is the quickest way to make something out of nothing – as long as you are not impoverishing yourself, the local population.