A Behavioral Analysis of Gaming Regulation

This Article seeks to establish a principled economic or behavioral basis for regulating gaming. It first examines the traditional economic imperfections for governmental regulation of private activity—the presence of market power, external costs or benefits, public goods, severe informational asymmetries, and collective action problems—and the policy prescriptions that correct for the inefficiencies that those imperfections cause. It then demonstrates that none of these deviations seems to apply to gaming markets. The Article next shows that neither market insurance nor self-insurance is likely to be available to protect those addicted to gambling from losses. Following the famous psychological experiments of Kahneman, Tversky, and others, the Article then discusses whether the persistent, systematic, and difficult-to-correct biases in individual decision-making, such as overoptimism, susceptibility to framing manipulations, and the stickiness of default rules, might serve as a principled basis for gaming regulation. The Article concludes by considering information disclosure and self-restriction, whether by a public, certified form or by a commitment bond, as devices for protecting the addicted gambler.

a. Swanlund Chair Emeritus, University of Illinois at Urbana-Champaign; Professor Emeritus of Law, University of Illinois College of Law; and Research Professor, University of Illinois at Urbana-Champaign. I would like to thank Professor John Kindt for the invitation to participate in this symposium and the staff of the University of Illinois Law Review for their help in editing and organizing this Article.

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