Gambling motivation and involvement: A review of social

Expected utility
b
c
a
w1
figure 1. Expected utility of wealth functions.
w2
Bernoulli function
Friedman-Savage
function
Wealth
The Friedman-Savage expected utility function curve is winding, formed by the considerations
of individuals regarding economic risk and gain that are determined by
their levels of wealth. As that level rises, marginal utility first decreases, then increases,
and finally decreases again. Thus, an increase in wealth of a certain amount far away
from the zero point (w2) of the wealth axis may imply higher expected utility than
an equivalent increase (w1) closer to the zero point: c≥a. The convex middle segment
of the curve represents the choices, of how to allocate scarce resources, of the upper
stratum of individuals belonging to a social group, for whom an increase in wealth
will move them up to a higher social group. Such social aspirations make the marginal
utility of wealth increase rather than decrease. That is, if an increase in wealth of, for
instance, 50,000 dollars will allow a working class man or woman to fulfill social
aspirations of becoming middle class, he or she is inclined to take the risk to invest in
ventures that may pay 50,000 dollars but that have an expected average return of less
than 100 percent. Money lost on lottery tickets and other forms of gambling does not
qualitatively lower a person’s social status – if he or she belongs to the upper stratum
of a social group and the amounts lost are not extreme – while the chance of winning
substantial sums offers an opportunity for a qualitative social advancement. Hence,
gambling is rational in such socio-economic circumstances.
This is how the Friedman-Savage hypothesis was originally formulated, and a
number of studies of gambling claim to have found empirical support for it [6 pp. 91-95 ,
G A M B L I N G M O T I VAT I O N A N D I N V O LV E M E N T 27