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Do consumers gamble to convexify?

Research output: Contribution to journalArticle

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
DateAccepted/In press - 30 Jul 2016
DateE-pub ahead of print - 31 Aug 2016
DatePublished (current) - Nov 2016

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.

    Research areas

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

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    Rights statement: This is the final published version of the article (version of record). It first appeared online via Elsevier at http://www.sciencedirect.com/science/article/pii/S0167268116301585. Please refer to any applicable terms of use of the publisher.

    Final published version, 927 KB, PDF document

    Licence: CC BY

  • Supplementary information PDF

    Rights statement: This is the final published version of the article (version of record). It first appeared online via Elsevier at http://www.sciencedirect.com/science/article/pii/S0167268116301585. Please refer to any applicable terms of use of the publisher.

    Final published version, 123 KB, PDF document

    Licence: CC BY

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