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Friday, June 05, 2009

Gambling is an inferior good?

Many textbooks present gambling as an inferior good - most often in the context of state lotteries. It is true that the econometric evidence suggests that lottery sales are negatively related to household income. Whether this points to ignorance or different preferences is not clear to me.

Yet, more formalized gambling is likely to be a normal good. For instance, while purchasing a lottery ticket can be done at the corner convenience store, a trip to Las Vegas is not easy to accomplish on a whim. Rather individuals with means are likely those who go to Vegas, Atlantic City and the other big-name gambling meccas. I will grant that taking a day trip to Biloxi might be more common for those living in the Jackson, MS area, but such a trip is definitely not in my wheelhouse.

This week's Business Week has some interesting data concerning gambling. One of the most telling is this plot of the Dow Jones U.S. Gambling Index vs. the S&P 500:



As incomes have been falling so too has the formal gambling market. Thus, gambling is a segmented market where certain forms of gambling are inferior goods and other forms are normal goods. Here is the year-to-year changes in gambling revenues (net of winnings):



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