An empirical investigation of theoretical loss and gambling intensity

Abstract

Many recent studies of internet gambling-particularly those that have analysed behavioural tracking data-have used variables such 'bet size' and 'number of games played' as proxy measures for 'gambling intensity'. In this paper it is argued that the most stable and reliable measure for 'gambling intensity' is the 'theoretical loss' (a product of total bet size and house advantage). In the long run, the theoretical loss corresponds with the Gross Gaming Revenue generated by commercial gaming operators. For shorter periods of time, theoretical loss is the most stable measure of gambling intensity as it is not distorted by gamblers' occasional wins. Even for single bets, the theoretical loss reflects the amount a player is willing to risk. Using behavioural tracking data of 100,000 players who played online casino, lottery and/or poker games, this paper also demonstrates that bet size does not equate to or explain theoretical loss as it does not take into account the house advantage. This lack of accuracy is shown to be even more pronounced for gamblers who play a variety of games.