I recently visited my relatives in the suburbs north of Seattle. The surrounding area used to be lined with forests and greenery, but I noticed a significant change in the landscape. I saw a large new casino built on Native American land just off the road—one of many sprouting up throughout the nation.

Though gambling can be fun, like many vices, some people can easily go overboard, resulting in compulsive or problem gambling. In a down economy, state and local governments often look to gambling as a panacea to improve economic development and increase tax revenue.

However, with all the new gambling options, some people will have trouble controlling themselves. In 1999, a U.S. government-sponsored study by the University of Chicago showed that pathological and problem gamblers cost society $5 billion per year and an additional $40 billion in lifetime costs for productivity reductions, social services, and creditor losses. My guess is that the problem is growing, not declining. And it's difficult to quantify the social costs to families caused by divorce and other family disruptions.

New technology may help. Some states and casino operators already have preset gambling limits, but they aren't likely to stop the problem gambler. Recent technological innovations include the ability for gamblers to establish gambling limits on themselves before going to the casino. It's always better to decide how much you can lose before you go. Recent software allows for purchase of credits before gambling and coincides with casino operators moving to a coinless payout system.

Just like credit-card fraud detection, a good system for detecting the problem gambler must be able to monitor the behavior in order to detect the problem. It must be able to limit a gambler's ability to overspend by placing dollar limits and determining how often a user can play within a certain time frame. Better yet, these decisions could be made before a customer is in the casino, while he or she is still thinking rationally. Recent technology allows implementation of these types of safeguards and controls to help people avoid gambling problems before they get serious. Just like many customer-interaction systems, newer gambling-safeguard systems incorporate interactive messaging, activity reports, and behavioral analysis to aid in controlling and, possibly, modifying gambling behavior. These types of safeguard systems are likely to be welcomed by politicians who worry about a gambling backlash from their constituents. They don't hurt the gaming operators either, since they might reduce their potential liability for excessive customer losses.

Given the recent public awareness over this growing social issue, it's not surprising that technological solutions in this area are quite new. A small company called Safe Gaming System, headed by CEO Richard Johnson, sells one of the more intriguing offerings. Another company, Game Planit Interactive, is primarily focused on consulting and education. I hope that these companies and others like them are successful as the number of online gambling sites and casinos continues to grow.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected]. This article is provided for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Bay Isle has no affiliation with, nor does it receive compensation from, any of the companies mentioned above. Bay Isle's current client portfolios may own publicly traded securities in one or more of these companies at any given time.

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