Spring 2012
9
Betting with your Brain Behavioral Economics and Gambling Safeguards Jun Liang Yap New York University
The debate over casino legalization in Singapore was dominated by questions considering the potential social costs that the city-state could incur. In particular, many were worried about the implications of problem and pathological gambling given a locally situated casino. In a statement
In a statement at Parliament in 2005, Prime Minister Lee Hsien Loong framed the main issue behind casino legislation in Singapore: “Are the economic benefits worth the social and law and order fallout?” at Parliament in 2005, Prime Minister Lee Hsien Loong framed the main issue behind casino legislation in Singapore: “Are the economic benefits worth the social and law and order fallout?” The answer to the question was a difficult “yes” for the government of Singapore as a significant proportion of the population remained unconvinced. Prime Minister
Lee did not expect unanimous support, recognizing the lack of a clear general consensus. It was decided that mandating casinos would do more good than harm in Singapore’s efforts to maintain itself as a world-class city. The casinos would provide added attractions that drive tourism. Moreover, they represent an additional source of tax revenue. Currently, casinos are subject to a 15% tax on gaming revenue from regular players and a 5% tax on gaming revenue from premium players. Premium players are those who maintain at least $100,000 in Singapore Dollars in a deposit account with the casino. The gap in tax rates between premium and normal players leads to an effective tax rate of approximately 12%. Despite its benefits, the social costs of casinos still have to be addressed. To mitigate potential social costs, the legalization of casinos under the Casino Control Act came with a host of mandatory social safeguards such as a controversial levy exclusive to citizens and permanent residents (PRs) of Singapore. The motivation behind these safeguards is relatively easy to grasp; the implication of a locally situated casino is that Singaporeans “will gamble more, more people will get into trouble, and more families will suffer.” The economics behind such safeguards is also straightforward. Casinos create social Columbia Economics Review
costs that remain unaccounted for in an unfettered market. The imposition of social safeguards is meant to reduce these social costs. More specifically, these safeguards primarily aim to prevent existing problem and pathological gamblers from further destructive behavior and the development of new problem and pathological gamblers Broadly speaking, the policy instruments that can be used to limit problem gambling fall under three categories: command safeguards, pricing safeguards, and behavioral safeguards. Command safeguards, such as age restrictions and exclusion programs directly restrict entry to gambling venues. Pricing safeguards, such as the casino levy for Singaporeans and PRs, indirectly restrict gambling by placing pricing barriers and disincentives. Behavioral and social safeguards such as patron education and media campaigns attempt to influence the decision making process of gamblers. Since the opening of both casinos, there is almost no doubt that Singapore has incurred additional social costs. H2 Gambling Capital, a British consultancy firm, has estimated that gambling losses in Singapore have risen 53% from $924 to $1,413. Moreover, the firm expects this figure to increase to $1849 by the end of this year. Credit Counseling Singapore, a debt advisory center, has seen a significant increase