4 ms·

Lotteries are reverse solidarity: a lot of people pay to make 1 person rich. Lotteries are my prime example when I want to highlight that humans don't act rati

Lotteries are reverse solidarity: a lot of people pay to make 1 person rich. Lotteries are my prime example when I want to highlight that humans don't act rationally

LitFan 8y ago
A possible explanation for why one would participate in a lottery: What if $5 per week for the rest of their life doesn't impact an individual's standard of living, but $10 million would drastically improve it? Does it then make (more) sense to participate?
- ska 8y ago
  Not in a strictly expected value sense, no. It's never going to be a rational choice from an financial point of view (i.e. there is always something else you can do with the $5 with better expected returns). But if you get some other value out of it you place at least $5/wk utility on, sure. Maybe you get more utility out if it than a movie a month, or whatever.
  - lozaning 8y ago
    I'll buy the occasional $10 scratcher, and then wait like a week to scratch it all off. The $10 is worth getting to ponder what I'll do with my massive windfall for that week! Already maxing my ROTH and 401K so I figure it's like $80 a year well spent to entertain the phantasy.
- Pica_soO 8y ago
  You would sacrifice - average lifeestimate 72 years times 52 weeks times 5 dollars - 18.7200 sparrows - aka a brand new car - for a pidgeon on the roof?
- daveFNbuck 8y ago
  That depends on the probabilities involved. If you send me $5/week, I might decide to give you $10 million one day. I don't have $10 million and I don't think I would want to give it away if I got that kind of money, but it could happen. Are you interested? Do you think anyone would be?
  - LitFan 8y ago
    If you were regulated like a state lottery, people would be interested - they already are. I don't think most people even consider the odds when playing the lottery.
    - daveFNbuck 8y ago
      The odds still matter. If no one ever won my lottery, I think people would eventually stop playing.
conanbatt 8y ago
Reverse solidarity is not a problem. Its that lotteries are economically inefficient: what the 1 person gets is less than the sum of the parts, that is truly destructive. OTOH, people pay for the dream of winning the lottery, which has some value, adicts withstanding.
andrewla 8y ago
Lotteries are rational for the same reason that insurance is rational. Insurance on the face of it is irrational -- insurance companies make money, therefore buying insurance is paying a premium above what the expected reimbursement is over the lifetime of the insurance. It's a reverse lottery; the expected outlays exceed the expected returns. What you pay the premium for in insurance is to reduce downside variance. What you pay the premium for in a lottery is to increase the upside variance.
- larrydag 8y ago
  yes i agree with these sentiments but the statistics involved are vastly different. The probability of a life-altering event is a lot greater than winning a lottery.

Lotteries are reverse solidarity: a lot of people pay to make 1 person rich. Lotteries are my prime example when I want to highlight that humans don't act rationally

LitFan 8y ago

A possible explanation for why one would participate in a lottery: What if $5 per week for the rest of their life doesn't impact an individual's standard of living, but $10 million would drastically improve it? Does it then make (more) sense to participate?

ska 8y ago
Not in a strictly expected value sense, no. It's never going to be a rational choice from an financial point of view (i.e. there is always something else you can do with the $5 with better expected returns). But if you get some other value out of it you place at least $5/wk utility on, sure. Maybe you get more utility out if it than a movie a month, or whatever.
- lozaning 8y ago
  I'll buy the occasional $10 scratcher, and then wait like a week to scratch it all off. The $10 is worth getting to ponder what I'll do with my massive windfall for that week! Already maxing my ROTH and 401K so I figure it's like $80 a year well spent to entertain the phantasy.
Pica_soO 8y ago
You would sacrifice - average lifeestimate 72 years times 52 weeks times 5 dollars - 18.7200 sparrows - aka a brand new car - for a pidgeon on the roof?
daveFNbuck 8y ago
That depends on the probabilities involved. If you send me $5/week, I might decide to give you $10 million one day. I don't have $10 million and I don't think I would want to give it away if I got that kind of money, but it could happen. Are you interested? Do you think anyone would be?
- LitFan 8y ago
  If you were regulated like a state lottery, people would be interested - they already are. I don't think most people even consider the odds when playing the lottery.
  - daveFNbuck 8y ago
    The odds still matter. If no one ever won my lottery, I think people would eventually stop playing.

conanbatt 8y ago

Reverse solidarity is not a problem. Its that lotteries are economically inefficient: what the 1 person gets is less than the sum of the parts, that is truly destructive. OTOH, people pay for the dream of winning the lottery, which has some value, adicts withstanding.

andrewla 8y ago

Lotteries are rational for the same reason that insurance is rational. Insurance on the face of it is irrational -- insurance companies make money, therefore buying insurance is paying a premium above what the expected reimbursement is over the lifetime of the insurance. It's a reverse lottery; the expected outlays exceed the expected returns. What you pay the premium for in insurance is to reduce downside variance. What you pay the premium for in a lottery is to increase the upside variance.

larrydag 8y ago
yes i agree with these sentiments but the statistics involved are vastly different. The probability of a life-altering event is a lot greater than winning a lottery.