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Do consumers gamble to convexify?

Crossley, TF and Low, H and Smith, S (2016) 'Do consumers gamble to convexify?' Journal of Economic Behavior and Organization, 131. 276 - 291. ISSN 0167-2681

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Abstract

© 2016 The Author(s) The combination of credit constraints and indivisible consumption goods may induce some risk-averse individuals to gamble to have a chance of crossing a purchasing threshold. This idea has been demonstrated theoretically, but not explored empirically. We test this idea by focusing on a key implication: income effects for individuals who choose to gamble are likely to be larger than for the general population. Using UK data on gambling wins, other windfalls and durable goods purchases, we show that winners display higher income effects than non-winners but only amongst those likely to be credit-constrained. This is consistent with credit-constrained, risk-averse agents gambling to convexify their budget set.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 08 Aug 2016 08:36
Last Modified: 17 Aug 2017 17:24
URI: http://repository.essex.ac.uk/id/eprint/17376

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