Handbook of Behavioral Industrial Organization
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Handbook of Behavioral Industrial Organization

Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.
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Chapter 10: Casino game markets

Roland Eisenhuth, Dermot Murphy and Andreas Neuhierl

Abstract

We examine the economics of casino gambling, a popular activity which represented 16.2 percent of US GDP in 2015. Departing from an expected utility framework, we present a model of stake-dependent utility for the gambler that generates positive gambling demand. Given this framework, we determine the odds chosen by the casino in competitive, monopolistic, and oligopolistic settings, and then examine the effect of taxation on the equilibrium odds and welfare. We endogenize the stake-dependent utility of the gambler using behavioral models of optimal expectations and cognitive dissonance and show that different gambler types self-select into different gambling games in equilibrium. Finally, we discuss a dynamic gambling model in which gamblers exhibit time-inconsistent behavior and display a tendency to “chase losses”.

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