"Gambling, Saving, and Lumpy Liquidity Needs"
News and Blog Coverage:
- Aired on NPR/WBUR May 25, 2017 by Sonia Paul
- Financial Access Initiative - NEUDC 2016 Review of Most Interesting Papers
- World Bank, Development Impact - Job Market Paper Series
Sports betting is one of the fastest growing forms of gambling in the world, with expansion fastest in many developing countries. Often dismissed as a vice or comprehension failure, I present evidence that unmet liquidity needs for indivisible, "lumpy", expenditures and financial constraints create betting demand as a second-best method of liquidity generation. With a sample of 1,842 sports bettors in Kampala, Uganda, I use a natural experiment to show that winnings increase the frequency and size of lumpy expenditures. I then show that a randomized savings box intervention reduces measured demand for betting by 28%. And I use two lab-in-the field experiments to isolate the mechanism of betting as a mode of liquidity generation. An experimental prime increasing the salience of a desired large expenditure increases betting demand by 15.7% while a randomized budgeting exercise decreases betting demand by 13-24% for the median update size among those who learn positive information about their ability to save. These results cannot be explained if betting were purely a normal good.