The sad positive feedback loop of lotteries | Hacker News Reader

The sad positive feedback loop of lotteries

scienceblogs.com

33 pointscwan43 comments

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.

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.

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.

if those are state-owned lotteries, then some profits do end-up as pensions anyway trough state-funded pensions.

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.

That's why I consider the lottery not a "math tax" but an "economics tax". Your reasoning seems reasonable to someone that doesn't think about it too hard. But if a $1 lottery ticket gives you, say, a 1/10,000,000 chance to win $2.5 million... well, you need having $2.5 million to be ten million times better than having one dollar to make it a good bet.

I have no idea why anyone would consider this a rational decision, but gamblers do not typically gamble because they are rational.

There's also the effects of decreasing marginal utility, and the problems that someone poor with personal finance will have when faced with a lottery jackpot. I don't need to get into those to support my argument, but those effects are pretty big.

I'd say that any player of these lotteries would say, without hesitation, that $2.5 million dollars in the bank is ten million times better or more than $1 dollar in the bank. You aren't really playing with numbers when you play the lottery, there is a lot more going on in the mind of the player than the odds.

You're right, but my point is that it's not rational to act against your interests, even if you think you're acting for them. Thinking it's worth it to play the lottery is almost certainly irrational except for individuals with a very strange utility curve...

The utility curve doesn't have to be all that strange - it just has to be a step function, where $1 yields no additional increase in utility yet $2.5M yields an additional increase.

There is pretty significant evidence that people's utility functions are in fact step functions - how many folks will just dump change into a tipjar, or refrain from picking up coins on the sidewalk?

'Hope insurance' makes a lot of sense. The question we should ask is, do lottery ticket buyers get their money's worth?

If it makes them feel more hopeful and happier, it might be worth the price, even if they never win anything substantial.

But if it becomes an addiction that ruins their lives, then it's pretty obvious that they aren't getting more than they put in.

I don't think lotteries are ruining a lot of lives the same way casinos do. One's lottery spending is pretty limited.

That would be my first impression too, but maybe compulsive lottery players are just less visible than casino addicts (because they don't all gather in the same spot)? I'd have to see some numbers to be sure.

I worked at a grocery store through high school, and there were people who would spend $25-50 on scratch-off lottery tickets almost every week, immediately re-spending the occasional $5 winner on...more tickets. I'm sure the details vary from state to state (this was in Michigan), but the scratch-off tickets probably get most of the money from poorer gambling addicts.

Yeah, scratch-off tickets resemble casinos a lot more than tickets where you have to wait for numbers to be drawn. There's an immediate pay-off/loss, so you can get that adrenaline rush.

You could buy your child a netbook -- or a shelf of real books -- for the average yearly lottery expenditure in Chicago's poorest neighborhoods. Or you could save the money and use it as a cushion against cash shocks, preventing you from having to go to payday lenders, which are another unsavory business which exists to keep people poor and stupid.

See: http://www.chicagoreporter.com/index.php/c/Cover_Stories/d/I...

> You could buy your child a netbook

so they can play MafiaWars or FarmVille...

Indeed, or simply go get a couple of personal finance books at the library and turn your life around. Too bad that few people actually do simple things that could improve their situation... If the money wasn't spent on lottery tickets, I'm not sure it would be spent on much better things.

which exists to keep people poor and stupid.

You mistyped "because" as "to" there.

A person can take their whole paycheck or social security check and spend it all on lottery tickets, just like they can spend it all in a casino. They are both ways to live in a delusional fantasy world. What is worse, casinos actually have a higher pay-off ratio than state run lotteries. So if they are going to live a fantasy they might as well go to a casino...

I think people who can internalize and rationally understand what hope insurance is could safely buy lottery tickets. Many people who buy it, it seems, buy it because they think one day they will actually get that $20m for a price of a cup of coffee.

In other words, I am not worried about HN-ers buying lottery tickets. I am worried about people well bellow the poverty line who spend a significant percentage of their already small income on lotteries. The little 'hope' fantasy game for them is a major delusion that sucks resources and time.

I think state run lotteries are a disgrace and should be banned.

I prefer "dream license". As long as the buyer understands that all they are really purchasing is a one- or two-dollar piece of paper that allows them to dream the impossible for a few days, then there's no harm done. That the dream comes true for a very few folk is almost incidental. In fact, it's probably healthier than resigning oneself to life in the depths (sorry -- just watched Metropolis again). It's when people begin to believe that they've actually purchased eleventy-seven million dollars for the price of a cup of coffee, when they sacrifice now for a tomorrow that probability dictates will almost certainly never come, that the idea breaks down.

But are they only "spending a few dollars a week on lottery tickets"? $645 a year comes out to a little over $12 a week on lottery tickets. I make more than $13k a year, and I'd notice $12 a week. Much more so if I was only making $13k/year. Lottery tickets are a dollar a piece, that's a lot of hope insurance.

Obviously, some people are spending just a few dollars a week, others are spending much more than that. Some people have a destructive pathological addiction, others have a moderate financial burden, and yet others have a relatively harmless diversion.

"without the ability to buy lottery tickets, [these people] would feel they have no possible way to become fabulously wealthy. ... For these people, there's no sense of hope for breaking out of where they are, and the absence of hope is very painful."

Which leads me to wonder, if they didn't have that ability to hope, and lives were more painful because of it, what might they otherwise do to try and improve their lot?

I.e., what is the true opportunity cost of the lottery -- not just in financial terms, but in terms of the future? More than anything, the lottery has always seemed to me like another ingenious way for the powerful to placate the doomed, and at their own expense.

the conclusion of the linked article that people are still poor because they keep on buying lottery tickets is naive and condescending.

Indeed. It is difficult to understand the mind set of the poor without understanding the screaming room: http://rortybomb.wordpress.com/2009/12/03/persistence-of-pov...

With that shift in perspective, a number of behaviors that seem irrational start to make a lot more sense.

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/N...

The interviewee, Ed Ugel, wrote a book on the subject: http://www.edwardugel.com/money-for-nothing.html

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.

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.

As the rabbit said in "Street Fight"

It's our money. Let's keep it!

Ideally, the 1/3 that goes towards education would be spent on training the people who buy lottery tickets to understand statistics.

"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."

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.

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.

government doesn't spend 100s of millions of it's own/taxpayer's money!

lotteries are after all profitable, unlike most start-up's.

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.

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.

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.

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.

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.

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

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.)

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.

the odds are pretty similar though

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