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Optimizing Casino ATM Charges

July 13th, 2009 · 3 Comments

Tyler Cowen wonders:

Should the service fee by high or low?  It could cut either way.  A low service fee encourages withdrawals and thus gambling, which is profitable for the casino.  A high service fee takes in money from the desperate and those with high time preference.

It was $4.99.  (Of course that is n = 1.)

On the other hand, they let you take out up to $1000, well above the average.

Obviously, nearly $5 is an unusually high service fee, and I think it makes perfect sense, because there’s an important missing angle here: The effect of the fee on the size of withdrawals. I don’t know about you, but when I’m out in a place where the only convenient cash machine has a high fee, I tend to take out significantly more cash—usually more than I think I’ll need—because the last thing I want is to get shaken down twice. Now, in the context of gambling, you’re going to have the serious addicts who will go back to the till as long as they’ve got cash left, and a couple extra bucks on the service fee won’t be a deterrent. You probably have a lot more casual gamblers who will take out a fixed amount to risk, and determine that they’re not going to go back for more if they burn through their stake. Those are the ones you really want hitting the table with a lot of cash in their pocket—and if they think the way I do, at least, a high service fee makes that more likely. I’m guessing that effect swamps the deterrent effect. Strong evidence to that effect is that the casinos do, in point of fact, seem to have gone with a conspicuously above-average service fee, and one assumes they’ve given the matter serious thought and empirical scrutiny.

Tags: Economics



3 responses so far ↓

  • 1 trizzlor // Jul 13, 2009 at 5:47 pm

    I think the psychology of casino planning is fascinating: no visible clocks or windows, ever-consistent light and temperature, open-air “markets” indoors, having to pass through slot-machine areas to get to bathrooms/shops, etc.

    Anyone have a book on the subject?

  • 2 Hobbes // Jul 14, 2009 at 5:14 pm

    Those unwilling to pay an unusually high atm fee may also be frugal gamblers, taking up space but generating less revenue for the casino than more affluent or less careful patrons.

  • 3 The Crossed Pond » The logic of a casino’s $5 ATM fee // Jul 18, 2009 at 5:38 am

    […] low seems straightforward enough until you factor in the public’s hankering for a deal. As Julian Sanchez notes: Obviously, nearly $5 is an unusually high service fee, and I think it makes perfect sense, […]

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