Do consumers gamble to convexify?
Published version
Peer-reviewed
Repository URI
Repository DOI
Loading...
Type
Article
Change log
Authors
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.
Description
Keywords
Lotteries, Income effects, Consumption, Durables, External validity
Journal Title
Journal of Economic Behavior and Organization
Conference Name
Journal ISSN
0167-2681
1879-1751
1879-1751
Volume Title
131
Publisher
Elsevier BV
Publisher DOI
Sponsorship
This work was supported in part by the ESRC-funded Centre for Microeconomic Analysis of Public Policy at the Institute for Fiscal Studies (grant number RES-544-28-5001.)