March 13, 2025
By Jason Sorens
Americans love to gamble. In 2024, we spent over $60 billion in casinos, over $12 billion on licensed sports betting, and likely more than $100 billion on state lotteries, to say nothing of tribal casinos, home poker games, and all the other myriad ways, licit and illicit, we stake money on future outcomes. (These are net figures: what gamblers stake minus what they win back.) All this money Americans spend on gambling reveals a basic truth we should keep in mind: gambling brings many people enjoyment. That enjoyment is valuable.
Gambling isn’t inherently wrong, but it can be. “Problem gamblers” could account for as much as one third of all gambling revenues. Clearly, legalizing online sports betting in many states has had several deleterious consequences, as Rachel Lu points out in her thoughtful piece advocating a ban on online sports betting.
But the solution to these problems isn’t a ban. Rather, we can fix online sports betting with better policies and more importantly, with better education and culture. This is the only solution compatible with human beings’ legitimate liberty interests and long-term happiness.
Like, I presume, many of the readers of this piece, I find it hard to understand why gambling is so pleasurable to so many people. The sum total of my experiences with gambling consist of: (1) a handful of home poker games (arguably not even gambling given the skill involved), (2) winning some money on election bets on PredictIt a few years ago before quitting in a huff when I realized how high the fees were just for getting my own money out, and (3) once hanging out with a Las Vegan acquaintance at a casino, desultorily pulling the handle on a quarter slots machine every few minutes so that his cocktail waitress friend would keep bringing us free martinis. I don’t have a lot of firsthand experience.
Gambling has an image problem, perhaps rightly so. The electronic clangor of slot machines in a dimly lit, shabbily carpeted rabbit warren of a casino, the whiff of poverty and stale cigarettes on the guy in line ahead of you at the gas station buying lottery tickets, the endless commercials pushing “parlays” on the sports betting apps - these things do not naturally appeal to college-educated ectomorphs whose hearts bleed for their fellow man. People blessed with a high degree of self-command and an adequate grasp of probability theory understandably tend to block out gambling mentally as a worthwhile entertainment option.
Yet an entertainment option it is, and in many cases a perfectly permissible and desirable one. To get a clear-eyed view of the ethics of gambling, we need to set aside our aesthetic biases and understand why people choose to spend their money this way.
Almost everyone knows that the house wins in the long run. Gambling is a net negative expected return activity. People aren’t fooled about this. But they are willing to pay a little bit of money for the chance to win a lot, even when they expect to lose on average. That’s the reason why state lotteries are so popular, even though lotteries have the worst payout percentage of all forms of lawful gambling, well under 70% of the amount wagered. (If any form of gambling should be banned on the grounds that it is exploitative, it is state lotteries.) Lotteries succeed because the potential winnings are so enormous and the amount staked is low.
Online sports betting offers unique benefits. You can do it while watching a game in the comfort of your home. It adds “zing” to a game. It can be social, as friends talk about their bets and commiserate over losses. The ballyhooed parlay bet shares with the lottery the thrill of hope for a big payout. Yes, the odds are bad, but are we sure that bettors do not know this? It’s more plausible that parlays are popular because bettors are risk-acceptant when the stakes are small and the gains are big.
Betting can also be a way of hedging psychic losses, providing a kind of insurance policy against the hazards of hateful outcomes. You can bet against your favorite team in the big game so that even if they lose, you win. (Admittedly, this strategy may detract from the “zing.”) I used to do this with political betting. I sometimes bet against my preferred candidates in important races, when I thought the market priced the odds accurately, so that I couldn’t be too disappointed if my candidates lost.
People bet online, voluntarily, because they expect some benefit from it - and they usually do get a benefit from it. As a general rule, we shouldn’t ban voluntary activities that provide innocent enjoyment to the great majority of those who undertake them unless the consequences of misuse are immensely harmful to others.
Are the harms of online sports betting immense? No.
Critics of online sports betting have been talking about a raft of new studies showing harms from legalization. But a cardinal rule of good social science is to look beyond “statistical significance,” a probability concept, to effect sizes. When we do that, the panic seems disproportionate.
For example, one widely touted study finds that legalizing online sports betting increases the risk of bankruptcy by 1 in 10,000 per person per quarter. The domestic violence study finds that “the effect of NFL home team upset losses on intimate partner violence” increases by 10 percentage points where sports betting is legal. NFL home team upset losses increase the risk of intimate partner violence by roughly 3% in their models when online sports betting is illegal, and by 13% when it is legal. (Intimate partner violence in general is 3% lower in online sports betting states.) Given the baseline rates of intimate partner violence in their data, their results imply that nationwide legal sports betting would lead to approximately 12 more intimate partner violence episodes nationwide per year. While all intimate partner violence is deplorable, this is a fortunately small number.
If we’re doing a utilitarian calculus, we should also take into account the negative externalities of prohibition. If convenient sports betting were banned nationwide, a lot of that activity would go back to the Mob. How many more legs would be broken, and how many more murders would there be?
Betting can also have positive externalities. Prediction markets are a clear example. As an anti-gambling measure, the federal government currently bans prediction markets within the U.S., at a tremendous social cost. If we could bet on the outcomes of policy proposals, for example, we’d be able to estimate their consequences with much more accuracy and precision. Betting on elections, too, helps investors navigate financial markets. They can input the implied probabilities of different outcomes into their expected return functions. (I did something like this once using British betting odds to estimate the economic impact of Scottish and Catalan secession.) Betting on sports might not have the same positive social externalities, but it’s going to be difficult to legalize prediction markets while at the same time banning betting on things that most people actually want to bet on.
Whatever the social costs of online sports betting are now, they’re likely the highest we’re ever going to see. Online sports betting is brand new. It’s understandable that Americans need time to adjust, to educate themselves about the risks and to promote responsibility among those encountering it for the first time. Over time, the negative side-effects will lessen.
But we shouldn’t rely on a utilitarian calculus to guide policy-making. If we can let people have more freedom of choice and enjoyment without significant, direct harm to others, we should.
It’s also worth pointing out that there’s no authorization in the U.S. Constitution for a federal ban on any form of gambling. Under the original meaning of Congress’ enumerated powers, it has no authority to control intrastate betting markets. (State-level gambling restrictions, by contrast, date back to the colonial era.)
How can we fix sports betting to lessen the costs while preserving the benefits?
First of all, we should recognize that in the interest of maximizing revenue, state governments have given monopoly franchises to sports betting companies to operate in their states. While lucrative to state coffers, this model harms the consumer by limiting competition. If competitive sports betting were allowed, companies would quickly compete away their supranormal profits by offering higher payout rates, which would in turn reduce the losses that bring about the negative consequences everyone talks about. States should consider nonrenewing their monopoly franchises and opening up their markets to competition from multiple betting companies.
In addition, states could require greater transparency from sports betting companies. At minimum they could be required to disclose their expected and historic payout rates. Perhaps parlay offers could be required to disclose either their expected value or their expected probability of paying out.
States could also give problem gamblers tools to insulate themselves from temptation. People should be allowed to ban themselves from sports betting apps, or to set monthly, weekly, and daily spend limits that they cannot change without some inconvenience, such as a signed, notarized form. Tools like these already exist in some states, but they could be broadened and advertised.
Ultimately, though, the law can’t make people wise or good. As distasteful as gambling may sometimes be to some of us, we can’t just make it disappear by legal fiat. Once we realize the limits of legislation, we can turn to education and support.
Jason Sorens, Ph.D., is Senior Research Fellow at AIER. He is also Principal Investigator on the New Hampshire Zoning Atlas.