Modelling demand for lotto using a novel method of correcting for endogeneity

Baker, RD ORCID:, Forrest, D and Perez, L 2020, 'Modelling demand for lotto using a novel method of correcting for endogeneity' , Economic Modelling, 84 , pp. 302-308.

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Modelling lottery sales as a function of the mean, standard deviation and skewness of the probability distribution of returns potentially gives insights into how the design of a game could be modified to maximise net revenue. But use of OLS is problematic because the level of sales itself affects values of the moments (and insufficient instruments are available for IV regression). We draw on the concept of a rational expectations equilibrium, developing a new regression model which corrects for endogeneity where the causal impact of the dependent variable on the right-hand side variables is deterministic. Results provide more reliable guidance to lottery agencies because accounting for endogeneity leads to significantly different results from OLS and these results have superior performance in out-of-sample forecasting of sales. More generally, results prove consistent with the Friedman-Savage explanation of why people buy lottery tickets and with evidence from racetrack data that ‘bettors love skewness’.

Item Type: Article
Additional Information: Originally titled "Modelling demand for lotto using a new way to correct for endogeneity"
Schools: Schools > Salford Business School
Journal or Publication Title: Economic Modelling
Publisher: Elsevier
ISSN: 0264-9993
Related URLs:
Depositing User: Prof Rose Dawn Baker
Date Deposited: 20 May 2019 09:33
Last Modified: 16 Feb 2022 02:05

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