Theoretical Loss and Gambling Intensity: A Simulation Study

Abstract

Many recent studies of internet gambling—particularly those that have analysed behavioural tracking data—have used variables such as ‘bet size’ and ‘number of games played’ as proxy measures for ‘gambling intensity.’ In this paper, it is argued that the best and most stable measure for Gambling Intensity is the ‘Theoretical Loss’ (a product of total bet size and house advantage). In the long run, Theoretical Loss corresponds with the Gross Gaming Revenue generated by commercial gaming operators. For shorter periods of time, Theoretical Loss is the most stable measure of gambling intensity as it is not distorted by gamblers’ occasional wins. Even for single bets, the Theoretical Loss reflects the amount a player is willing to risk. Using a simulation study, with up to 300,000 players playing as many as 13 different games, this paper demonstrates that the bet size and the number of games do not explain the theoretical loss entirely. In fact, there is a large proportion of variance which remains unexplained by measures of ‘bet size’ and ‘number of games’ played. Bet size and the number of games played do not equate to or explain theoretical loss, as neither of these two measures takes into account the house advantage.

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