IQ, personality and the payday effect in horse race betting

Abstract

We investigate increases in betting activity, on both the extensive and intensive margins, in response to predictable changes in financial resources. We examine the extent to which income, cognitive ability, and the personality traits conscientiousness and extraversion predict these choices. Specifically, we analyse how these factors moderate horse race betting behaviour around a monthly payday and the annual tax refund day in Finland. Our daily data comprised all online horse bets placed by individual bettors in Finland over one year, combined with IQ and personality test scores from conscription data, and with administrative data on socioeconomic and demographic variables. Both paydays and tax refund day induced increases in betting on both the extensive and intensive margins. Effects were stronger for individuals with lower income, lower IQ, and a lower degree of conscientiousness, with mixed results on the role of extraversion. In the case of betting, liquidity constraints and limited ability in managing finances therefore play a role in whether and how individuals smooth activity over time.