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Benford's LawTheory and Applications$
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Steven J. Miller

Print publication date: 2015

Print ISBN-13: 9780691147611

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691147611.001.0001

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Managing Risk in Numbers Games

Managing Risk in Numbers Games

Chapter:
(p.276) Chapter Fifteen Managing Risk in Numbers Games
Source:
Benford's Law
Author(s):

Mabel C. Chou

Qingxia Kong

Chung-Piaw Teo

Huan Zheng

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691147611.003.0015

This chapter applies Benford's law to study how players choose numbers in fixed-odds number lottery games. Empirical data suggests that not all players choose numbers with equal probability in lottery games. Some of them tend to bet on (smaller) numbers that are closely related to events around them (e.g., birthdays, anniversaries, addresses, etc.). In a fixed-odds lottery game, this small-number phenomenon imposes a serious risk on the game operator of a big payout if a very popular number is chosen as the winning number. The chapter quantifies this phenomenon and develops a choice model incorporating a modified Benford's law for lottery players to capture the magnitude of the small-number phenomenon observed in the empirical data.

Keywords:   fixed odds, number lottery games, small number, gambling, lottery, managing risk, numbers games

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