The Frontal Cortex

Lotteries

Here’s an old post from July 08:

The devious slogan for the New York State lottery is “All you need is a dollar and a dream.” Such state lotteries are a regressive form of taxation, since the vast majority of lottery consumers are low-income. The statistics are bleak: Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is also starkly regressive, with lower income households being much more likely to play. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, or about 9 percent of all income.

A new study by Emily Haisley, Romel Mostafa and George Loewenstein explored some of the reasons why low-income people spend so much money on a product that only returns fifty three cents on the dollar. (Lotteries are such a bad deal that they make slot machines look good.) Here’s the abstract:

In two experiments conducted with low-income participants, we examine how implicit comparisons with other income classes increase low-income individuals’ desire to play the lottery. In Experiment 1, participants were more likely to purchase lottery tickets when they were primed to perceive that their own income was low relative to an implicit standard. In Experiment 2, participants purchased more tickets when they considered situations in which rich people or poor people receive advantages, implicitly highlighting the fact that everyone has an equal chance of winning the lottery.

The study neatly illuminates the sad positive feedback loop of lotteries. The games naturally appeal to poor people, which causes them to spend disproportionate amounts of their income on lotteries, which helps keep them poor, which keeps them buying tickets. The saddest part is that these destructive games are run by the government.

Comments

  1. #1 Dave X
    May 11, 2010

    “All you need is a dollar and a dream.”

    And 5 seconds later, you’re left with neither.

    Our county school’s lottery money has declined by almost 50% this budget year. I guess the players in this economy have less dollars to dream with.

  2. #2 F B
    May 11, 2010

    >> A household with income under $13,000 spends, on average,
    >> $645 a year on lottery tickets, or about 9 percent of all
    >> income.

    $645 is about 5% of $13,000. Which of these has been averaged, and how to you get to the 9% figure ? Spending 9% of disposable income on lottery tickets seems a huge amount.

    This possible anomaly doesn’t distract from your very pertinent message – thanks, Jonah.

  3. #3 Lou
    May 11, 2010

    It is NOT a tax. Nobody is forced to buy lotto tickets. You can argue that the government should not be encouraging lotto play, especially for those who can’t afford it (whether I agree on that or not is irrelavant, I can at least see that argument).

    But a tax? No, no way.

  4. #4 Charles Pootle
    May 11, 2010

    It’s a form of entertainment that adults can decide for themselves whether or not they want to indulge in. It just happens to be a form of entertainment that is particularly attractive to the poor.

    To assume that if you eliminate the lottery you’ll be putting that money back into their pockets is foolish.

  5. #5 DavidK
    May 11, 2010

    It takes advantage of vulnerable people’s weaknesses. It’s certainly a metaphoric tax: on being desperate, poor, and mathematically illiterate.

  6. #6 jbscpa
    May 11, 2010

    Not just the poor are victims.

    In my opinion, young adults, say 18 to 25 years old of all economic classes are particularly vulnerable to believing that they can overcome the odds.

    In their immaturity and inexperience they consider themselves both indestructible and “the exception to the rule”.

    They waste disposable income at a time when they can least afford it.

  7. #7 NJ
    May 11, 2010

    You can argue that it is a ‘tax’ on people who are poor or bad at math, but that just elides the truth: The modern US lotteries are at heart exploitation of those without hope, a symptom of systemic economic failure.

    Those who purchase the tickets understand that, for them, there is no “American Dream”, no Horatio Alger story, no rom-com ending. The system has been rigged so they will remain a permanent underclass. The lottery supplies a thin sliver of a chance that everything will work out, just enough so the complaints don’t get too loud, the unfocused anger doesn’t boil over too much.

    What happens when they stop working?

  8. #8 N
    May 11, 2010

    We pay to educate them – (all of us pay taxes, to pay for public education, for all of us) – they are certainly not mathematically illiterate.

    To say so is an unfair generalization, both of the lottery-ticket buyers, and of the people who pay for that education, and the educators themselves.

    NJ possibly has a more accurate view.
    Ticket purchasers (likely) have a certain outlook. There is something depressing and distressing about this situation. Our empathy at work. Our desire to solve a problem for other people. Possibly our view that this is not just “someone else’s problem” but also OUR problem. Even our view that since WE are the government, that our participation in this activity is immoral.

    For that matter – to what extent ARE we responsible for other people’s choices? Say we eliminate this activity – (and I do agree, mainly because it’s a political crutch, and gives state governments an excuse to play a dishonest shell-game with revenue generation and budgets).
    “We the People” also have used our democratic power, to make the sale of alcohol illegal.
    One of the (many) arguments for that, was that poor Irish immigrants were spending much of their income on alcohol, and becoming idlers, and were not, as a new ethnic group, finding economic opportunity in this country.
    And it was soon found that when alcohol was banned – people chose to take it to the black market, where the abusive effects were worse. (were they more. . . or less widespread, demographically? – didn’t matter, gang activity made big headlines).

    So if gambling (lottery) were made completely illegal – of course, there would always be the black market element. (and frankly – even with legal gambling; Nevada, Indian Casinos, Dog/Horse racing, we all know that illegal gambling is rampant: including dog and rooster fighting, private card games, and office sports-betting pools.)

    Does the presence of a legal, state-regulated lottery actually mitigate the effect that otherwise illegal gambling might have? Does that possibility make us feel better about the immorality of this enterprise?

    NJ’s comment rails about a system that “has been rigged so they will remain a permanent underclass.”
    Well – what else can, could, or should be done about that?

    What are the “odds” of any given person regardless of background “becoming independently wealthy”? And what does that even mean? (I’d say it was attempting to satisfy Maslow’s low-level need for security; rationalized via overwhelming financial independence – which is an inherently irrational idea, because there is no such thing as independence, all money is issued by a government, and all objects of value are valued by others’ perception, as a basic tenet of Economics, therefore; any wealth is dependent on others.)

    So – that said; if a person can feel that that need is satisfied (by whatever means), then it stands to reason that they wouldn’t have a need to seek some arbitrarily mythological amount of wealth in order to attain this feeling of security. They wont buy lottery tickets. They won’t gamble. They wont invest in high-risk derivatives. They may not even join the rat-race with the goal to “retire by age 55″.

    You can’t force “opportunity” on such a person.

  9. #9 Richard
    May 11, 2010

    A lottery is a VOLUNTARY tax. So, considering the odds, it makes no sense to play the lottery and then complain about taxes.

  10. #10 Thumbprint
    May 11, 2010

    You know, a lot of people fall into this broad category of the poor lottery suckers. Not everyone lusts after a posh life, and many people living at the poverty level are happy and well. Sure they’d like more money; but who wouldn’t? They’re not poor bumbling deprived desperate idiots who can’t think for themselves; they’re giving a couple of bucks for a fantasy shot at a big haul.

  11. #11 James Davis
    May 11, 2010

    I hate to justify a bad decision on the part of the government, but lotteries are like drugs, alcohol, cigarettes, etcetera. You can either outlaw them and let Vinnie and Dimitri run the show in back alleys and hidden haunts, with the bodies piling up outside and the game rigged to be unwinnable, or you can take control of it, make sure it’s “fair” (y’know, so it’s actually possible to win) and done in the open, using the money to fund education so that perhaps a few less people will play. Certainly a case of “the lesser of two evils”.

    I have a very different opinion about these “mega-millions” lotteries that have so many numbers and absurdly high payouts with even more absurdly low odds. It’s one thing to let people gamble, because people will no matter what you do. It’s another to rig the game.

    Seriously though, education isn’t even needed, you just need a card shark to go around to these people and remind them of the №1 rule in gambling: The money you spend on it is lost and you will never make it back. It doesn’t matter how good you do in the short run or how skilled you are at any game. In the end, the house wins.

  12. #12 facts
    May 11, 2010

    fact is, lotteries are government sponsored and targeted at the poor and minorities.

  13. #13 Katherine
    May 11, 2010

    And profit from the lotteries commission in my country goes towards programs to help people (sports for kids etc.) I’m not sure what portion of profit from pokies, casinos and the TAB goes back to the people.

  14. #14 Ronbo
    May 11, 2010

    Easy solution: eliminate the tax aspect by returning all of the money to the players in the form of winning tickets.
    Then it becomes a way for the poor to give a few of their own a chance at a better life. Fund ordinary public activities like schools with actual taxes, let lotteries run as a non-profit entertainment.

  15. #15 Jefrir
    May 12, 2010

    Ronbo, they still wouldn’t get all their money back, because a lottery costs money to run.

  16. #16 BCL1
    May 12, 2010

    I think that there may be a confusion between cause and effect here. Correlation does not mean causation. Perhaps what is happening is that a person who is unmotivated is likely to become a. poor and b. a lottery player (i.e. somebody who expects to get something for nothing).

  17. #17 Edward
    May 13, 2010

    I consider myself not poor. In fact I am quite well off. However, I happen to like lotteries. They are also quite rational depending on your assumptions: c.f. Lloyd. R. Cohen Lotteries, Liberty and Legislatures (2000)

  18. #18 whp
    May 24, 2010

    The thing about lotteries, as a Chinese friend points out, is that the risk-reward ratio is more than acceptable. Whether to play lotteries is therefore more a policy decision than a social issue.

  19. #19 David Cunningham
    May 31, 2010

    All true, but does it make them happy? My grandma used to play the lotto, not because she needed to, but because she thought it was fun. So does my mom. You might have some obsessives who play more than they should, but their problem probably isn’t the existence of the lottery. True, it’s not a good money-value proposition, but that argument could be extended to all gambling (including the stock market) unless you’re the house (or Goldman Sachs). A ferris wheel ride is a bad money-value proposition, but it also allows you to dream of being on top.

  20. #20 David
    May 31, 2010

    I think that state lotteries could be replaced with state raffles, which you could either make voluntary or compulsory.

    Let’s say a raffle ticket costs a dollar, and you live in a state with 5 million people. Assuming that half of the population is made up of adults, and all the adults purchase a raffle ticket, that puts $2.5 million into the pot. Assuming low overhead (after all, much like Social security, you are just redistributing the money) that leaves probably a $2 million dollar prize (before taxes, assuming this is subject to taxes).

    Does it offer as much in winnings as other lotteries do? No, but it’s still quite a pretty penny, and your odds of winning are a lot better. One source puts the odds of winning the lottery at 120,000,000:1, meaning you have to get every number correct and in sequence. The raffle in this example has odds of 2,500,000:1.

    Also, because it’s a raffle, it would have a guaranteed winner every month. I think this would make the idea of winning more plausible to people as well, making the endeavor less fanciful than winning the lottery. This would guarantee that someone in your state will win a million dollar prize every month.

    Other variations: you could have a 50/50 raffle (or other proportions) where part of the total goes into the winnings, the other part gets added to future winnings or is invested somehow.

    Even if winnings were as low as $100,000 (how paltry!), a raffle system seems to me a better ‘investment’ for someone to make rather than the regressive tax of current lottery systems.

  21. #21 tyler
    June 3, 2010

    Lottery games are the worst commercial gambling form ever invited and especially poor people suffer from it… sucks, worldwide!

  22. #22 DMB
    June 3, 2010

    Wow, some of you people amaze me. The government is victimizing poor people and minorities by having lotteries? Hahaha! Either people are going to gamble in a legal way by purchasing a lottery ticket in the front of the liquor store, or they’re going to gamble illegal by playing poker in the back of the liquor store. The government isn’t victimizing anybody.

    The only way the government encourages poor people to remain poor is through welfare by rewarding laziness. And don’t even try to tell me that people on welfare have no choice. The majority of recipients are perfectly content with the free life they lead mooching off of people who actually work.

    At least there are benefits to the lottery— my college education was paid for in part by the Georgia Lottery HOPE program. Did any lazy, dead-beat food-stamp recipients ever pay to help educate anybody?

  23. #23 KMarx
    June 3, 2010

    I bought 3 one dollar lottery tickets this week. They are the first I have purchased in 30 years. I may wait another 30, as I didn’t win – I KNOW!!!

  24. #24 Dave in NC
    June 3, 2010

    When I lived in D.C., I would see women in the winter with several kids in tow and shoes falling apart spending $50 on tickets. Here in North Carolina, the political spending class billed the lottery as ‘The Education Lottery’, with the implication that the money raised would go to schools in addition to current money. However, spending on school has remained flat and as soon as the economy went south Governor Bev Perdue raided the funds. ‘Education Lottery’, my, um, foot.

  25. #25 larry burdge
    June 3, 2010

    Boortz says he likes the lottery for the basic reason that: It’s the only tax that some people will ever pay. I HAVE TO AGREE WITH THAT STATMENT.

  26. #26 John S
    June 3, 2010

    The sad fact is that a large percentage of lotto players (I read 50% plus, can’t find the link though) depend on lotto as their retirement plan. The problem is not that it’s voluntary, it’s that these people are not saving for retirement because lotto is their retirement plan. And the rest of us will have to pay for it under our great nanny state gov’t…

  27. #27 BeeJay
    June 3, 2010

    The “system [of the American Dream] is rigged”????? You’re one of those who buys lots of tickets, aren’t you? Odds of winning the lottery isn’t a “thin sliver of a chance,” they’re virtually nil. And should some poor bloke happen to win big, what happens with the money? Saved? Invested? Put away for an education or a decent retirement? No, to purchase things they think they want. The money is too often blown. And they’re right back where they started. So much for being a victim of “the system.”

  28. #28 BPWATL
    June 3, 2010

    Let’s remember folks, poor people do things that keep them poor. Sadly, if they don’t waste their money on lottery tickets, they’ll toss it out the window another way.

  29. Excellent post, Jonah. Lotteries and casinos are the most predatory business in America and play a central role in our country’s debt culture that has trapped tens of millions of working people. No problem better symbolizes what is broken our democracy and our economy than the government program of predatory gambling.

  30. #30 Matt Behnken
    June 22, 2010

    I love how the problem is the lottery and not the system. If you ask someone who plays scratchers they’ll probably say that they are “up” since the beginning. It’s about hope for sure. Instead of belittling them and saying they can’t do the math or comprehend the odds, understand how poor and hopeless their lives are. They remain poor because they can’t contribute to society. Obviously it’s a casinos fault the poor can’t or don’t want to work. Besides they can’t save up, they can’t even save 100 bucks. You know why? Cuz they’re poor and every dollar will be spent, every time. It might be tossed out the window or it might be spent on food. The need money to get back on top, but nobody will give it to them, nobody.

  31. #31 jorn
    July 8, 2010

    i am on the poverty line according to the fed and ny state tax brackets and spend $4 a week on lottery tickets. it doesn’t horribly effect my life to loose $4 a week on the lottery and there is the 1 in 100,000,000 chance that i may win the jackpot. $4 a week untill i’m sixtyfive would mean $2,235 lost over 43 years, which will have a minimal ecconomic impact on my life. but on the off chance that i win, then i’m rich bitch. so don’t condemn the lottery because some degenerites have no self control. its thier own fault for being irresponsible.

  32. #32 siraj ray
    August 19, 2010

    can indian citizen lawfully purchase lousina lottery tickets
    from india and win prizes?

  33. #33 Jens
    September 28, 2010

    I Also think the same like taylor. Lottery games are the worst commercial gambling form ever invited and especially poor people suffer from it.

  34. #34 Mark
    March 25, 2011

    lottery games are a scam man and poor people get scammed by it!!

  35. #35 bookofradeluxe
    April 4, 2011

    I bought 3 one dollar lottery tickets this week. They are the first I have purchased in 30 years. I may wait another 30, as I didn’t win – I KNOW!!!

  36. #36 OCS
    April 19, 2011

    Lotteries are such a joke man

  37. #37 Bookofradeluxe
    July 7, 2011

    Lottery games are the worst commercial gambling form ever invited and especially poor people suffer from it… sucks, worldwide!

  38. #38 Book of Ra
    October 6, 2011

    Man sollte nicht immer alles verallgemeinern…

  39. #39 Novoline
    October 7, 2011

    Besser kann man es in dem Fall wirklich nicht formulieren!

  40. #40 Novoline
    October 9, 2011

    Ein wenig differenzierter formuliert wäre der Artikel besser.

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