4 ms·

The sad positive feedback loop of lotteries

33 points by cwan 17y ago

patio11 17y ago
See also: http://www.taxfoundation.org/news/show/1126.html http://www.taxfoundation.org/news/show/1126.html There are plenty of stupid governmental policies, but few as maliciously stupid as lotteries, where the government spends hundreds of millions of dollars buying advertising to encourage poor people to lose their money.
- borism 17y ago
  government doesn't spend 100s of millions of it's own/taxpayer's money! lotteries are after all profitable, unlike most start-up's.
- diziet 17y ago
  Yet can you imagine a public and political campaign to remove lotteries? Any kind of reasoning will sound condescending, especially with the reward structure build around infrequent but noticeable payoffs keeping the players coming back to it.
MartinCron 17y ago
I wish I remembered where I heard this concept, as it helped make the tendency to purchase lottery tickets by low-income individuals more understandable: Buying lottery tickets is buying 'hope insurance' From my own perspective, there are a few different ways in which I could become fabulously wealthy, or at least much more financially secure than I am now. I could create or work for a hugely successful company. I could make a killing in real estate. I could win second place in a beauty contest. Lots of different things. I try my best not to be materialistic, but there are times when I see beautiful homes or fancy cars or $650 Prada shoes and I think "I could so totally enjoy that someday". There's at least a little bit of hope that I could, someday. There are lots of people out there who, without the ability to buy lottery tickets, would feel they have no possible way to become fabulously wealthy (even if that feeling isn't strictly correct). For these people, there's no sense of hope for breaking out of where they are, and the absence of hope is very painful. Spending a few dollars a week on lottery tickets to keep that hope alive becomes a sort of rational purchase. People aren't actuarial robots. I'm not saying that I think that buying lottery tickets are a good idea, or that government-run lotteries aren't a form of abusive regressive taxation, but the conclusion of the linked article that people are still poor because they keep on buying lottery tickets is naive and condescending.
- percept 17y ago
  It's reminiscent of that quote again: "The Grand essentials of happiness are: something to do, something to love, and something to hope for." - Allan K. Chalmers I don't buy lottery tickets (building apps may be my equivalent) but I know many who do. It isn't much to spend compared to other pastimes and helps people get through the work week.
- look_lookatme 17y ago
  I would like to see a portion of lottery ticket purchases end up in an individuals retirement/savings account, locked away for some pre-determined period of time, transferable on death to relatives, interest split between the state and the individual. It's a shallow proposal, but seems like a nice idea, anyway.
  - borism 17y ago
    if those are state-owned lotteries, then some profits do end-up as pensions anyway trough state-funded pensions.
  - nostrademons 17y ago
    I don't think that'd fulfill the purpose of buying a lottery ticket, though. I look at it in terms of different marginal utility functions of money. A dollar a day isn't going to take you from poor to rich. Over a year, that's $365. Over a working life of 50 years, that's slightly under $20k. $20K in a retirement account isn't going to last you very long or buy you very much. $50M, however, is a very different experience. You're rich; you don't have to work. You don't have to look at the price tags on items. You can buy all the things you dreamed of before. Lottery players are completely rational, they just don't think in terms of numbers. They think in terms of "I can go from poor to poor, or I can have a chance of going from poor to rich." There's a qualitative difference between having $50 in the bank and $50M in the bank. There is not really a qualitative difference between having an income of $13,000/year and having an income of $12,635/year.
    - cynicalkane 17y ago
lukeqsee 17y ago
Lotteries are a sad story of Government policy gone awry. They prey on the poor, uneducated. It seems they could be just a devious plot to get back the tax refund the poor (as in sad) people get every year.
- watchandwait 17y ago
  Yeah, the article fails to recognize that the lottery's returns are so poor because the government has a monopoly on them. At least private sector lotteries would have to compete on payout levels.
  - fh 17y ago
    No, they wouldn't. All that they'd compete on is perceived payout. In other words, if you have private competing lotteries, they'd optimize the heck out of the feedback loop explained in the article, ruining people's lives even more.
MartinCron 17y ago
In the This American Life episode #329, there's a great interview with a person who buys up lottery winners' annuities for (discounted) lump sums. After seeing what happens to the lives of so many "instant millionaire" lottery winners, he starts seeing winning the lottery as a horrible curse instead of as a wonderful blessing. http://www.thisamericanlife.org/radio-archives/episode/329/Nice-Work-If-You-Can-Get-It http://www.thisamericanlife.org/radio-archives/episode/329/N... The interviewee, Ed Ugel, wrote a book on the subject: http://www.edwardugel.com/money-for-nothing.html http://www.edwardugel.com/money-for-nothing.html
- aristus 17y ago
  I used to work for a company that did this. Rather, they had moved on to advising people who did this. Cashflow brokering is sometimes a sensible business for actual businesses, eg you have $1M in firm orders and need some cash today to fill them. But I feel the same way as that guy about most lottery winners. Being rich really is a habit of mind that you can't learn overnight.
davemabe 17y ago
The lottery is a tax on people who are bad at math.
- mynameishere 17y ago
  If you actually ask a lottery customer, you'll find that they have a basic grasp of the math. I prefer to think of the lottery as a tax on people willing to pay taxes, and that's as moral as taxation can get. Anyway, the real motivations of the lottery customer are not as stupid as people think. Consider: 1. Odds of Joe Beercan getting rich through the usual methods (years of hard work, inheritance, rock stardom): Zero. And Joe knows this better than anyone. 2. Odds of Joe Beercan getting rich through the lottery: One in 600 billion. He knows this is a longshot, but that it's better than nothing. If you want even the merest shot at getting rich, the lottery's not so bad. (Though hoping for 10 blackjacks in a row is probably still better.)
grellas 17y ago
I remember when California first instituted its lottery and, upon hearing that 1/3 of the proceeds would go toward financing education (the political justification for the system), 1/3 would go toward administrative expenses, and 1/3 would go toward paying off winners, I immediately envisioned a poker game with six guys being told that a stranger would be taking away two-thirds of every pot for each hand they played and thought, "what a sucker game that is." In his autobiography, Malcolm X spoke of the numbers-game racket that so decimated Harlem in his day. They used to call this exploitation. Now they call its modern counterpart enlightened public policy. Pretty sad.
- stcredzero 17y ago
  As the rabbit said in "Street Fight" It's our money. Let's keep it!
- mstevens 17y ago
  Ideally, the 1/3 that goes towards education would be spent on training the people who buy lottery tickets to understand statistics.
- noilly 17y ago
  "I picked strawberries, and though I can't recall what I got per crate for picking, I remember that after working hard all one day, I wound up with about a dollar, which was a whole lot of money in those times. I was so hungry, I didn't know what to do. I was walking away toward town with visions of buying something good to eat, and this older white boy I knew, Richard Dixon, came up and asked me if I wanted to match nickels. He had plenty of change for my dollar. In about a half hour, he had all the change back, including my dollar, and instead of going to town to buy something, I went home with nothing, and I was bitter. But that was nothing compared to what I felt when I found out later that he had cheated. There is a way that you can catch and hold the nickel and make it come up the way you want. This was my first lesson about gambling: if you see somebody winning all the time, he isn't gambling, he's cheating."
- greyboy 17y ago
  The state I lived in previously recently approved and instituted a state "education" lottery, where all the proceeds would benefit the education system. The campaign was relentless for a few years until approved. What they _didn't_ tell people was that, upon approval, most state funding would stop and be _replaced_ by the lottery proceeds. In the end it turns out that the lottery proceeds were much less compared to the state funding and, therefore, the educational funding has been greatly reduced.
deleted 17y ago
[deleted]
gojomo 17y ago
Good thing poor people are protected from investing in private securities offerings, via regulation and 'accredited investor' limits, so that they can spend more on government-issued lottery tickets.
- borism 17y ago
  the odds are pretty similar though
zokier 17y ago
I buy lottery tickets occasionally (few times a year). I have few 'justifications' for that: * The money goes to charitable purposes. So if I don't win, I have given money to charity, which is kinda nice. * Somebody always wins (eventually). And hopefully she/he will be bit happier, at least momentarily. * It is actually possible for me to win. Even a small chance of winning is a lot more than zero possibility. Overall from my perspective it seems a net positive for a few dollars a year. Of course poor people spending tens of dollars a week is quite different matter, and bit problematic.

33 points by cwan 17y ago

See also: http://www.taxfoundation.org/news/show/1126.html http://www.taxfoundation.org/news/show/1126.html There are plenty of stupid governmental policies, but few as maliciously stupid as lotteries, where the government spends hundreds of millions of dollars buying advertising to encourage poor people to lose their money.

borism 17y ago
government doesn't spend 100s of millions of it's own/taxpayer's money! lotteries are after all profitable, unlike most start-up's.
diziet 17y ago
Yet can you imagine a public and political campaign to remove lotteries? Any kind of reasoning will sound condescending, especially with the reward structure build around infrequent but noticeable payoffs keeping the players coming back to it.

MartinCron 17y ago

I wish I remembered where I heard this concept, as it helped make the tendency to purchase lottery tickets by low-income individuals more understandable: Buying lottery tickets is buying 'hope insurance' From my own perspective, there are a few different ways in which I could become fabulously wealthy, or at least much more financially secure than I am now. I could create or work for a hugely successful company. I could make a killing in real estate. I could win second place in a beauty contest. Lots of different things. I try my best not to be materialistic, but there are times when I see beautiful homes or fancy cars or $650 Prada shoes and I think "I could so totally enjoy that someday". There's at least a little bit of hope that I could, someday. There are lots of people out there who, without the ability to buy lottery tickets, would feel they have no possible way to become fabulously wealthy (even if that feeling isn't strictly correct). For these people, there's no sense of hope for breaking out of where they are, and the absence of hope is very painful. Spending a few dollars a week on lottery tickets to keep that hope alive becomes a sort of rational purchase. People aren't actuarial robots. I'm not saying that I think that buying lottery tickets are a good idea, or that government-run lotteries aren't a form of abusive regressive taxation, but the conclusion of the linked article that people are still poor because they keep on buying lottery tickets is naive and condescending.

percept 17y ago
It's reminiscent of that quote again: "The Grand essentials of happiness are: something to do, something to love, and something to hope for." - Allan K. Chalmers I don't buy lottery tickets (building apps may be my equivalent) but I know many who do. It isn't much to spend compared to other pastimes and helps people get through the work week.
look_lookatme 17y ago
I would like to see a portion of lottery ticket purchases end up in an individuals retirement/savings account, locked away for some pre-determined period of time, transferable on death to relatives, interest split between the state and the individual. It's a shallow proposal, but seems like a nice idea, anyway.
- borism 17y ago
  if those are state-owned lotteries, then some profits do end-up as pensions anyway trough state-funded pensions.
- nostrademons 17y ago
  I don't think that'd fulfill the purpose of buying a lottery ticket, though. I look at it in terms of different marginal utility functions of money. A dollar a day isn't going to take you from poor to rich. Over a year, that's $365. Over a working life of 50 years, that's slightly under $20k. $20K in a retirement account isn't going to last you very long or buy you very much. $50M, however, is a very different experience. You're rich; you don't have to work. You don't have to look at the price tags on items. You can buy all the things you dreamed of before. Lottery players are completely rational, they just don't think in terms of numbers. They think in terms of "I can go from poor to poor, or I can have a chance of going from poor to rich." There's a qualitative difference between having $50 in the bank and $50M in the bank. There is not really a qualitative difference between having an income of $13,000/year and having an income of $12,635/year.
  - cynicalkane 17y ago

lukeqsee 17y ago

Lotteries are a sad story of Government policy gone awry. They prey on the poor, uneducated. It seems they could be just a devious plot to get back the tax refund the poor (as in sad) people get every year.

watchandwait 17y ago
Yeah, the article fails to recognize that the lottery's returns are so poor because the government has a monopoly on them. At least private sector lotteries would have to compete on payout levels.
- fh 17y ago
  No, they wouldn't. All that they'd compete on is perceived payout. In other words, if you have private competing lotteries, they'd optimize the heck out of the feedback loop explained in the article, ruining people's lives even more.

MartinCron 17y ago

In the This American Life episode #329, there's a great interview with a person who buys up lottery winners' annuities for (discounted) lump sums. After seeing what happens to the lives of so many "instant millionaire" lottery winners, he starts seeing winning the lottery as a horrible curse instead of as a wonderful blessing. http://www.thisamericanlife.org/radio-archives/episode/329/Nice-Work-If-You-Can-Get-It http://www.thisamericanlife.org/radio-archives/episode/329/N... The interviewee, Ed Ugel, wrote a book on the subject: http://www.edwardugel.com/money-for-nothing.html http://www.edwardugel.com/money-for-nothing.html

aristus 17y ago
I used to work for a company that did this. Rather, they had moved on to advising people who did this. Cashflow brokering is sometimes a sensible business for actual businesses, eg you have $1M in firm orders and need some cash today to fill them. But I feel the same way as that guy about most lottery winners. Being rich really is a habit of mind that you can't learn overnight.

davemabe 17y ago

The lottery is a tax on people who are bad at math.

mynameishere 17y ago
If you actually ask a lottery customer, you'll find that they have a basic grasp of the math. I prefer to think of the lottery as a tax on people willing to pay taxes, and that's as moral as taxation can get. Anyway, the real motivations of the lottery customer are not as stupid as people think. Consider: 1. Odds of Joe Beercan getting rich through the usual methods (years of hard work, inheritance, rock stardom): Zero. And Joe knows this better than anyone. 2. Odds of Joe Beercan getting rich through the lottery: One in 600 billion. He knows this is a longshot, but that it's better than nothing. If you want even the merest shot at getting rich, the lottery's not so bad. (Though hoping for 10 blackjacks in a row is probably still better.)

grellas 17y ago

I remember when California first instituted its lottery and, upon hearing that 1/3 of the proceeds would go toward financing education (the political justification for the system), 1/3 would go toward administrative expenses, and 1/3 would go toward paying off winners, I immediately envisioned a poker game with six guys being told that a stranger would be taking away two-thirds of every pot for each hand they played and thought, "what a sucker game that is." In his autobiography, Malcolm X spoke of the numbers-game racket that so decimated Harlem in his day. They used to call this exploitation. Now they call its modern counterpart enlightened public policy. Pretty sad.

stcredzero 17y ago
As the rabbit said in "Street Fight" It's our money. Let's keep it!
mstevens 17y ago
Ideally, the 1/3 that goes towards education would be spent on training the people who buy lottery tickets to understand statistics.
noilly 17y ago
"I picked strawberries, and though I can't recall what I got per crate for picking, I remember that after working hard all one day, I wound up with about a dollar, which was a whole lot of money in those times. I was so hungry, I didn't know what to do. I was walking away toward town with visions of buying something good to eat, and this older white boy I knew, Richard Dixon, came up and asked me if I wanted to match nickels. He had plenty of change for my dollar. In about a half hour, he had all the change back, including my dollar, and instead of going to town to buy something, I went home with nothing, and I was bitter. But that was nothing compared to what I felt when I found out later that he had cheated. There is a way that you can catch and hold the nickel and make it come up the way you want. This was my first lesson about gambling: if you see somebody winning all the time, he isn't gambling, he's cheating."
greyboy 17y ago
The state I lived in previously recently approved and instituted a state "education" lottery, where all the proceeds would benefit the education system. The campaign was relentless for a few years until approved. What they _didn't_ tell people was that, upon approval, most state funding would stop and be _replaced_ by the lottery proceeds. In the end it turns out that the lottery proceeds were much less compared to the state funding and, therefore, the educational funding has been greatly reduced.

deleted 17y ago

[deleted]

gojomo 17y ago

Good thing poor people are protected from investing in private securities offerings, via regulation and 'accredited investor' limits, so that they can spend more on government-issued lottery tickets.

borism 17y ago
the odds are pretty similar though

zokier 17y ago

I buy lottery tickets occasionally (few times a year). I have few 'justifications' for that: * The money goes to charitable purposes. So if I don't win, I have given money to charity, which is kinda nice. * Somebody always wins (eventually). And hopefully she/he will be bit happier, at least momentarily. * It is actually possible for me to win. Even a small chance of winning is a lot more than zero possibility. Overall from my perspective it seems a net positive for a few dollars a year. Of course poor people spending tens of dollars a week is quite different matter, and bit problematic.