Gambling and Betting Board of India?

On 26 January 1999, in an article Enlistment of human greed in this slot, Ashok Desai wrote about the problems of lotteries, the risk that promises might not be upheld, and how such gambling could become a normal part of our economy.

Should gambling be banned? For many years, of course, the answer to such questions was simple: gambling was termed as immoral and banned. In recent times, with the greater acceptance of liberal values in India, it's harder to support a moralistic ban. In any case, the enforcement capacity against "illegal gambling" is quite miniscule.

I should point out here that I, for one, never gamble. All my training as an economist rebels against the concept of entering into a contract where, on average, I stand to lose money. The fact that I suffer uncertainty, in the bargain, adds insult to injury. Gambling is a class of opportunities where the risk is positive and the return is negative -- it simply does not make sense to me. Some economists view gambling as being a consumption good -- a person is entertained by exposing small sums of money to such lotteries. I personally don't understand it. I would only gamble as part of a project where the odds are somehow altered in my favour. This is possible in blackjack (where a fast brain can calculate probabilities and win systematically), and roulette (where computers hidden in shoes can be used to forecast where the ball will stop). Those interested in this line of thought should look at a fascinating book The eudaemonic pie by Thomas Bass.

How should gambling work? In a world where gambling was morally wrong and illegal, there could be no question about regulation and contract enforcement. But if we are to view the sale of lottery tickets as a legitimate business proposition, then we have to start evaluating the rules of the game, and their legal enforcement.

How is a customer to be certain that the winning number in a lottery is drawn fairly, that the lottery--provider is not choosing a number of a co--conspirator? How is a customer to know that the odds on a roulette wheel are truly symmetric? The question of fairness is particularly present with lottery tickets. The lottery provider promises a fixed prize (e.g. Rs.1 million) in a state of ignorance of how many tickets will be sold. If the revenue from the sale of tickets is smaller than the promised prize, what is the machinery through which the promises will be upheld? There could be a "capital adequacy" question here, to ensure that the agency has funds to back the lottery before it embarks on making promises about the prizes that could follow.

In order to obtain a well-functioning market economy, we need to address these questions. This is regardless of whatever moralistic overtones might be present about gambling. We should focus upon contracts and their enforcement.

An analogy might perhaps be made with the stock market. Many people and firms like to go up to the stock market and buy ITC in the hope that it will go up. Unlike the "small amounts of money" which are applied into roulette or blackjack, the sums of money involved, when UTI thinks that ITC will go up in the future, are massive. Whether or not this activity is considered "good" or "right" at a moral level, it is the right of citizens in a free country to do what they like with their own money.

Fairness in the "rules of the game", here, is about a host of problems. The user of the market has no right to expect that the stock will go up. But he has a right to not be cheated on the price that the broker gives him. He has a right to be able to buy brokerage services from a market which is not a club of brokers. He has a right to demand that prices on the exchange are not rigged. He has to right to expect that the conversion of money into securities or vice versa should take place flawlessly, on a reliable time-schedule. If a share truly goes down from 100 to 90, then the ideal market is one in which he loses Rs.10 - and nothing else.

As of 1994, none of these "rights" existed in India. Hence, policy makers in India created SEBI and NSE. This proved to be one of the most successful interventions in the history of the Indian economy, and enormous progress has been made in solving these problems. Proceeding by analogy, does this mean that we now need a Gambling and Betting Board of India, which keeps tabs upon the entire gambling industry, and a public sector National Gambling Corporation which offers best-of-the-breed gambling services?

In my opinion, this would be an inappropriate set of initiatives, for two reasons:

Hence, the appropriate platform that we should adopt towards gambling is that (a) it should be perfectly legal and unregulated, (b) a complaint by a citizen about fraud in gambling should be viewed exactly like any other violation of contract, generating investigation and enforcement. Once gambling is legal, private information providers would publish data for the expected payoffs associated with alternative gambling providers, thus informing citizens about which could be preferable. The development of brandnames would work as a vehicle for people to identify sound providers of gambling as opposed to scamsters. However, this market deepening would not come about if gambling were simply banned.


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