IQ is a positive predictor of participation and spending in horse wagering; in addition, high IQ is associated with choosing more complex (high variance) betting products

Does IQ predict engagement with skill-based gambling? Large-scale evidence from horserace betting. Niko Suhonen, Jani Saastamoinen, David Forrest, Tuomo Kainulainen. Journal of Behavioral Decision Making, September 4 2022. https://doi.org/10.1002/bdm.2300

Abstract: We examine how measured intelligence, referred to as IQ, predicts a consumer's decisions on whether to participate in online horse wagering, how much to spend on those bets, and which horserace betting products to consume. We combine three individual-level archival data sets from Finland, including all online horse bets during a 1-year period from the state-sanctioned monopoly operator, the Finnish Defence Forces' IQ test scores from male conscripts born between 1962 and 1990 (N = 705,809), and administrative registry data on socioeconomic status, income, and education for these men. An analysis of male bettors (N = 15,488) shows that IQ is a positive predictor of participation and spending. In addition, high IQ is associated with choosing more complex (high variance) betting products. We find that these results are driven primarily by numerical IQ.

6 CONCLUSION

6.1 Discussion

This paper demonstrates that IQ, and especially its numerical ability subcomponent, is positively associated with an individual's decisions relating to participation in and expenditure on horse betting, and with a relative preference for complex betting formats. It is plausible that intelligent persons and those with numerical ability gain satisfaction from absorbing themselves in tasks involving “crunching numbers,” such as horse wagering. Consequently, our study provides empirical support for treating decisions on gambling as aspects of consumer behavior (Conlisk, 1993), at least in the case of skill-based gambling, as opposed to the proposition that gambling stems from behavioral biases (Barberis, 2012).

Consistent with Forrest and McHale (2018), our analyses suggest that IQ, and particularly numerical IQ, predicts participation in horse wagering. To some extent, this result is also congruent with Grinblatt et al. (2011) who find that IQ is positively correlated with an individual's decision to invest in the stock market, because skill-based forms of gambling and stock markets tend to attract similar individuals in terms of motivation and personality attributes (Arthur et al., 2016). As high-IQ men tend to spend more on horse betting products than low-IQ men do, our findings may also reflect the intellectual challenge quality of horse betting, as suggested by Binde (2013).

On the other hand, our results appear to be at odds with Gong and Zhu (2019), as none of their three measures of cognitive ability were significant predictors of which gamblers choose to engage in skill-and-chance games (as opposed to pure chance games, defined by them as comprising bingo, scratchcards, lottery, and keno). However, their list of skill-and-chance products included slot machines. Slot machines typically offer games where the outcome is random and tends to be generally regarded as a chance-based game (Stevens & Young, 2010). Furthermore, their data were a self-reported survey. Consequently, these aspects warrant caution when our results are compared with those presented in Gong and Zhu (2019).

Consistent with the hypothesis that a motivation for betting is the intellectual challenge (Binde, 2013; Johnson & Bruce, 1997, 1998), our results suggest that individuals seek to match their betting choice to their own level of IQ. Since high-IQ individuals appear to respond more to price (Grinblatt et al., 2016), it is fair to assume that these individuals in our context are likely to be aware of the lower take-out on easy products and in any case the different levels of take-out are clearly signaled by the operator. In particular, this result suggests that high numerical IQ consumers enjoy the intellectual challenge provided by complex betting formats and are willing to pay a greater take-out to play them. Consequently, their stronger preference for complex bets could reflect a genuine preference, which is consistent with intelligent persons exhibiting preference for performing challenging tasks (Cacioppo & Petty, 1981).

It is also possible to define the take-out rate as one of several “structural characteristics” which distinguish different gambling products from each other (Newall et al., 2021). When viewed purely through the lens of expected value, complex betting formats might appear as less attractive than simple ones (Newall et al., 2021), particularly for those bettors with a high numerical ability. In our approach, however, take-out is not regarded as a structural characteristic of the product, because it is not inherent to the product, but rather is a price chosen by the supplier in response to the nature of demand. In our findings, bettors with higher cognitive skills choose to purchase more complex products despite their high take-out rate. This implies that degree of complexity is the “structural characteristic,” and it is one for which they are willing to pay a higher price.

The administrative registry data facilitated the inclusion of controls reflecting demographic and socioeconomic status, which allowed us to draw conclusions about horse betting. For example, spending tends to increase with income, but slowly. This mirrors previous findings for gambling spend in general (Rude et al., 2014) and for lottery games (Combs & Spry, 2019) and implies that lower income individuals tend to allocate a higher share of their income to gambling (Castrén et al., 2018). Regarding age, engagement with horse betting appears to peak in middle-age, again similar to findings about participation in gambling generally (Welte et al., 2011). But whether the relatively greater engagement with horse betting in Finland among the middle-aged represents a cohort effect or a generational effect cannot be inferred from 1 year of data.

6.2 Limitations and future research

This paper has some limitations. Foremost, our data set includes only data on horse betting. Hence, our results may not generalize to other forms of gambling, most notably chance-based gambling. Further, we are unable to analyze propensities to problem gambling. Although some studies suggest that low IQ correlates with problem gambling (e.g., Hodgins et al., 2012; Rai et al., 2014), other factors that we could not observe are also likely to be relevant. For example, Parker et al. (2008) highlighted the role of emotional intelligence as a protective factor against the risk of developing problems.

The FDF data set also has some limitations. First, individuals have different incentives to effort when completing the test, which may bias IQ test scores. That is, if a conscript wishes to avoid training for a non-commissioned officer, which is more likely if he or she performs well in the IQ test, he or she may purposely underperform in the test. In addition, our measures of IQ may not be directly comparable to other studies, as IQ or cognitive ability is often operationalized in very different ways, depending on a study and its context. Second, some males are exempt from military service and some opt for non-military service instead. Third, the sample excludes the female population. Fourth, IQ scores were measured between 6 and 34 years prior to the betting transactions recorded in the study. To the extent that IQ can change over an adult's lifetime, this introduces measurement error into the analysis. Finally, the data are from a limited time interval and from a single country.

Our results open avenues for future studies. Rather than examining only a general measure of IQ, future studies should examine how the separate subcomponents of IQ predict consumer decision making. Intelligence and numerical ability could be instrumental in decisions relating to consumption, investment, and life outcomes in general. Future studies could also yield insight into theories of risk-taking behavior by addressing correlations between IQ and a person's risk preferences.

6.3 Concluding remarks

This paper demonstrates that a person's IQ predicts his engagement with horse betting. Our results show that IQ, and especially its numerical ability subcomponent, is positively correlated with participation in and expenditure on horse betting, and a relative preference for complex betting formats. These findings are consistent with skill-based gambling, or at least horse betting, being consumption of entertainment, which intelligent individuals enjoy. Thus, it is plausible that intelligent persons and those with numerical ability gain satisfaction from absorbing themselves in tasks involving “crunching numbers,” such as horse wagering.