Taking a Gamble on Casino Regulation
You pull the lever. Fruit, gemstones, and sevens whir before your eyes. Suddenly, the slot machine goes dark before text blinks onto the screen: “You have reached the maximum time allotted to play the slots. Please leave the casino floor.” The adjacent clock indicates that it is almost morning.
Casinos are typically portrayed as windowless and well-lit, providing patrons with the illusion of timelessness by banning clocks and allowing unlimited turns on machines and tables. But this illusion is alive and consequential in the mind of Jim Leitzel.
In a recent paper, Leitzel, director of Public Policy Studies at the University of Chicago, seeks to transform the way states regulate casinos. Rejecting the status quo, in which regulations aim to optimize casino revenue, Leitzel argues that states should instead develop rules that call for casinos to “nudge” irrational gamblers into more socially desirable behavior. His proposed regulations would compel casinos to develop intervening systems that dissuade gamblers from engaging in risky behavior, such as betting too much money or staying at the casino until sunrise.
Lawmakers frequently debate whether their states should legalize commercial casinos—as opposed to tribal casinos—in the first place. Once the casinos are legalized, however, the behavior of casino patrons is virtually unregulated.
The goal of most casinos is to attract problem gamblers. As defined by the National Center for Responsible Gambling, problem gamblers are a subset of gamblers who suffer from “adverse consequences” after betting, such as hiding their gambling habit from others and gambling to escape feelings of depression.
Of the 141 million U.S. adults who gambled last year, 8 million were problem gamblers. To attract problem gamblers, casinos employ devices such as flashing lights, unlimited alcohol, and stimulating sound effects. And these attractions work: Up to $5.7 billion of total casino revenue can be traced back to problem gamblers, including 60 percent of all slot machine revenue.
Leitzel’s “first-best” regulatory framework simultaneously targets problem gamblers’ risky behavior and protects recreational gamblers’ “consumer sovereignty.” Leitzel admits, however, that it is difficult for regulators to know up front whether someone entering a casino is a recreational or problem gambler. Even recreational gamblers occasionally exhibit behavior that is characteristic of problem gamblers, like spinning the roulette wheel a few too many times or spending that last dollar on another turn at the slots.
Instead, Leitzel’s “second-best” regulatory scheme encourages regulators to “nudge” all gamblers toward smarter, more deliberate decisions, without impinging too much on their casino experience. Leitzel groups his proposed regulations into three categories: information-provision regulations, regulations that impose commitment devices, and educational regulations that teach gamblers about how casinos manipulate their behavior.
Leitzel pushes casinos to provide gamblers with information about their behavior, predicting that they will more likely leave a casino when they believe that their conduct crossed the line from enjoyable to irrational.
Leitzel’s information-provision regulations primarily target slot machines. For example, most states mandate that slot machines return a fraction of each dollar. In Nevada, regulations require that slot machine payout is at least 75 percent, meaning that if a gambler spent $100 playing the slots, she would walk away with an average of $75. But these payout percentages are mysteries to most gamblers, who most likely have not perused state regulations before walking into a casino.
Leitzel argues that if states were to require each slot machine to display its average payout percentage, then gamblers could make more informed decisions about whether they wish to play. In addition, Leitzel advocates that regulators require casinos to make more data available to gamblers, including jackpot size and the probability of winning.
Leitzel also advocates that casinos track gamblers’ net winnings and losses. A 2017 study found that frequent gamblers wager 13 times more money at casinos than they think. In light of this study, Leitzel suggests that casinos offer personalized tracking mechanisms to “nudge” gamblers into recognizing their cutoff points. Leitzel’s ideas include personalized keycards that bettors must use to log in to machines, or a screen on each machine that tracks a gambler’s winnings during single sessions.
Problem gamblers would also benefit from technology that could enforce their own self-imposed limits, Leitzel argues. He suggests that states require casinos to equip their facilities with commitment devices that would compel gamblers to decide in advance how much time they will spend in the casino, or how much money they will wager, and then automatically postpone their gambling privileges once they reach their self-designated limit. Commitment devices would interrupt gamblers’ fixation on the prospect of winning, helping to keep them from falling too deeply “in the zone” where they lose rational control over their behavior.
Finally, Leitzel endorses regulations that educate gamblers about ways in which casinos manipulate their thinking patterns. Leitzel again directs his attention to slot machines because slot machines often disguise losses as wins or “near misses.” They currently blare the same cheerful music and colorful lights regardless of whether a gambler hits the jackpot or zeroes out. These happy lights and sounds overpower any melancholy gamblers might otherwise feel when they lose.
Slot machines’ symbols also often stop halfway between winning and losing positions, says Leitzel. For example, if a gambler spins two sevens, the third symbol will often stall between a seven and a gemstone. This experience gives the bettor the illusion that her spin was a “near miss” and maybe she will be victorious next time.
For Leitzel, these educational regulations would help “de-bias” gamblers from the casino’s most tantalizing attractions, “nudging” them into recognizing that, in reality, they are losing.
Casinos are often synonymous with vice. Leitzel demonstrates, however, that they do not have to be. Casino patrons can sensibly engage in inherently risky behavior, and Leitzel maintains that regulators can reduce problem gambling by mandating a series of nudges. It is anyone’s bet whether they will.
Source: Regulatory News