Gambling as a Rational Choice: When Does It Make Sense to Gamble?

Abstract

This paper explores the rationality of gambling within a classical economy framework, where individuals are assumed to be risk-averse and aim to maximize their utility. Traditionally, gambling is viewed as an irrational activity, particularly for those with a concave utility function, as the expected utility from gambling is typically lower than from not gambling. However, this study introduces a novel perspective by considering the role of indivisible goods—high-value items that cannot be partially acquired. The paper argues that for individuals whose income is insufficient to purchase such goods, gambling can become a rational strategy to obtain the necessary funds in a single, albeit risky, endeavor. This rationalization of gambling contrasts with other theories like prospect theory and behavioral economics, which attribute gambling behavior to cognitive biases and psychological factors. By incorporating indivisible goods, this paper provides a new understanding of why rational individuals might choose to gamble despite their risk aversion. The findings suggest in the presence of indivisible goods, gambling may indeed be a rational choice aimed at maximizing overall utility. This has significant implications for policymakers, who must balance the need to regulate gambling with the recognition that it can be a rational economic decision under certain circumstances.