The Magic of the Game: Experimental Evidence on Sports Betting Behavior

As sports betting is surging worldwide, so are concerns about excessive gambling. To explore the drivers of this phenomenon, we conduct an experiment investigating how regular sports bettors in urban Tanzania value sports bets and form expectations about winning probabilities. We find that subjects assign higher certainty equivalents and winning probabilities to sports bets than to urn-and-balls lotteries with identical odds, even though, in fact, they are not more likely to win. We complement the experimental evidence with original survey data on sports betting frequency and motives. Overall, our results suggest that systematic misperceptions of the risks and returns associated with sports betting may contribute to its booming popularity.