Tuesday, November 13, 2007

Where Do Gambling Laws Rank on the Dumb Laws Scale?

I'd say they have to be near the top. To The People and Radley Balko each have posts today talking about state responses to gambling. To sum up: TTP lampoons the newfound support of Maryland Democrats for slot machines now that they hold the governor's mansion; meanwhile, Balko is stunned by Massachussetts Gov. Deval Patrick's support for a bill that gives authority for licensure of more casinos in the state while- at the same time- imposing a 2 year prison sentence on online gamblers.

These two situations demonstrate pretty clearly how arbitrary the gambling laws can be in this country. Which brings me to one of my all time greatest pet peeves about government regulation.

If anything is more arbitrary than the definition of illegal drug, it's the definition of illegal gambling. Indeed, unlike drugs, the relative damages of a particular type of gambling are quite quantifiable- it's quite easy to find out the odds on any given game, and there's no disputing what those odds are.

What is interesting about the gambling laws is that the types of gambling most likely to be legal in a given state are often the games with the worst odds of all gambling games: slot machines and lotteries. Slot machines usually have a house edge of around 6% (higher stakes machines have substantially better odds); lotteries of course have a house edge of, well, a lot. Of course, these two games are usually either state run or give a nice percentage payout to the states. But that's not the point of most anti-gambling legislation, which is usually justified on the grounds of protecting people from becoming gambling addicts or general morality.

Meanwhile, states are far more likely to have absolute prohibitions on table games, where the house edge ranges from 5.6% (roulette) to less than 1% (Blackjack and Craps), with most games well below 4%. Moreover, in poker you are really just paying the house for providing you with a dealer, a table, and an opportunity to play against a group of strangers (in other words, there is no house edge other than what is effectively your "rent" to sit at the table- the house itself theoretically has no interest in the outcome of the game). One of the main differences between most table games and slots/lotteries is also that in most (not all) table games, there is an element of rational decision making involved ("hit or stay" in blackjack being the most obvious example); this is not the case in lotteries/slot games (though it is somewhat the case in video poker), where one can only decide how much to bet- and even that decision is limited.

I suppose an argument in support of slots and lotteries, but against table games, would be that despite the low odds in slot machines and lotteries, they are somehow less likely to cause addictive behavior than table games. The argument presumably goes that since they are also such low stakes games, the effects of addiction are also much less with slots and lotteries.

But such an argument is deeply flawed and, in my opinion, dishonest. One need only walk through the slot machines in Atlantic City and compare them to the craps table to find out which game is more likely to create misery and addiction. Moreover, in slots it's pretty easy to lose track of how you're doing- the repetitive process of "bet max, pull the lever; bet max, pull the lever" is pretty much enough to make you oblivious to just about everything. In the time it takes to play even one blackjack hand, you can easily play probably 5 or 6 spins of the slots, maybe more. At a table game by comparison, you have to wait for everyone to place their bets, for the dealer to deal the cards or spin the wheel, etc. You also have an opportunity to, I don't know, interact with other people, which allows you to be more aware of your surroundings. The nature of table games, with your stacks of chips, also means you are pretty much constantly aware of how you're doing; if you run out of chips, you have to rebuy for a lot, which means you are more likely to feel the burn than in slots, where you only need to rebuy for a couple bucks every time.

The idea that the low stakes of lotteries and slots makes them less problematic is also a fallacy. First, as I suggested above, slot machines can be played at a rate far in excess of any table game; this alone probably makes up for the difference in stakes. Meanwhile, the lottery's house advantage is so far in excess of any other form of gambling that you can pretty much forget about any mitigating factor caused by smaller stakes.

Also worth pointing out: state-sponsored slot games and lottery games are highly regressive as a taxation tool. Someone with a lot of money to begin with is quite unlikely to play the lottery (especially since that person is probably educated enough to realize the long odds of winning), so lotto revenue is going to come primarily from the working poor and lower middle class. Meanwhile slot machines, as I indicated above, have much better odds at higher betting levels. Someone playing the nickel slots because they're poor may be betting the same percentage of their income on the slots as someone playing the $5 slots who is relatively wealthy. But the house edge in the nickel slots is about 4 or 5 times as much as the edge in the $5 slots, meaning that state revenue from slot machines is going to come almost exclusively from people playing the nickel slots. These people, of course, are far more likely to be poor than someone playing the $5 slots.