Worth the risk? Modeling irrational gambling behavior

Abstract

In math class, expected value is often used when deciding whether or not a game is worth playing. A common refrain is that games with negative expected value should be avoided. However, nearly all games of chance have a negative expected value, and a simple expected value analysis fails to explain why these games are so popular. In this article, we consider three psychological factors leading to irrational gambling behavior - the illusion of control, hypersensitivity to reward, and beginner's luck - and explore how these factors affect an otherwise purely rational model of gambling behavior.