This makes me sad:
When gasoline prices shot up this year, Peggy Seemann thought about saving the $10 she spends weekly on lottery tickets.
But the prospect that the $10 could become $100 million or more was too appealing. So rather than stop buying Mega Millions tickets, Ms. Seemann, 50, who lives in suburban Chicago and works in advertising sales for a financial Web site, saved money instead by packing her lunch a few days a week, keeping alive her dreams of hitting a jackpot and retiring as a multimillionaire.
“With companies tightening and not giving cost-of-living increases, you have to try to make money elsewhere,” she said, though conceding, “It might be convoluted logic.”
Many state lotteries across the country are experiencing record sales, driven in part by intense marketing but also by people like Ms. Seemann who are trying to turn a lottery ticket into a ticket out of hard times.
Last week, I did a short interview with George Loewenstein, over at Scientific American.
LEHRER: Your most recent paper looked at some of the factors that seem to influence the purchase of lottery tickets. What did you find?
LOEWENSTEIN: We [Emily Haisley, Romel Mostafa and I, all of whom are researchers at Carnegie Mellon] have two papers addressing the motives underlying lottery ticket purchases. All of the research was conducted with low income samples recruited at the Greyhound bus station in Pittsburgh. In all of the studies, we paid travelers $5 for completing a survey on their attitudes toward Pittsburgh, then give them the opportunity to purchase lottery tickets with the money. The variable of interest was, in all studies, the number of tickets they purchased.
One of the papers, just out in the Journal of Behavioral Decision Making was inspired by the empirical observation that the poor spend a disproportionate percentage of their income on lottery tickets. We conducted two experiments to examine whether making people feel poor makes them want to play the lottery.
We randomly assigned subjects to either feel relatively poor or relatively rich by having them complete demographic questions that included an item on annual income. The group made to feel poor was asked to provide its income on a scale that began at “less than $100,000″ and went up from there, ensuring that most respondents would be in the lowest income tier. The group made to feel subjectively wealthier was asked to report income on a scale that began with “less than $10,000″ and increased in $10,000 increments, leading most respondents to be in a middle tier. The group made to feel poor purchased twice as many lottery tickets (an average of 1.27) than those made to feel relatively wealthier (0.67 tickets, on average).
In the second experiment, we indirectly reminded participants that, while different income groups face unequal prospects when it comes to education, employment and housing, everyone has an equal chance to win the lottery. This reminder that the lottery is a kind of “social equalizer” also increased lottery tickets purchases. The group given this reminder purchased 1.31 tickets, on average, as compared with 0.54 for those not given such a reminder.
LEHRER: Have these experiments changed how you feel about the lottery? Would you advocate any changes to the way the lottery system is run?
LOEWENSTEIN: Clearly there is a demand for playing the lottery, and people seem to get something out of it; otherwise they wouldn’t keep playing. But it is well established that low income people spend a higher percentage of their income on the lottery than other income groups (with one study finding that those earning incomes less than $12,400 spend an average of $645 on lotteries each year), so the lottery ends up taxing the poor at a higher rate when it makes much more sense to tax the rich at a higher rate.
The finding from our first study, that when you make people feel poor they play more, is especially sad since playing the lottery is on average a massively losing proposition. The propensity of low income individuals to play the lottery has the perverse effect of exacerbating their poverty. Although there are no easy solutions to the problem, one obvious one would be to cease marketing and advertising that targets the poor. It probably makes sense for the state to sell lottery tickets, because otherwise they will be sold by organized crime. However, does it really make sense for the state to be inducing, through advertising, poor people to play who wouldn’t play in the absence of such inducement?
Similarly, states could promote and offer more games that appeal to wealthier players, such as Powerball, and not those popular with poorer players, such as instant scratch-off tickets. Another obvious solution, though one that is even less likely to be implemented, would be for the state to increase the payout on the tickets, and perhaps to increase the number of moderate size prizes.
Finally, a third option would be for financial institutions to issue investment instruments that have lottery-like qualities (for example, offered in small amounts, available at many convenient points of purchase, provide a small chance of a large upside) but offer a positive rate of return, providing the pleasure of playing the lottery without the steep cost. In many other countries “prize bonds” or other savings instruments are available that pay lottery winnings in place of, or in addition to, regular interest. Regulations in the United States have stymied the development of such offerings.