Lottery and happiness; or “Are lottery players stupid?”

22
Sep
Nick

Are lottery players stupid2 Do you play the lottery? Yes? Then please do every effort to stay away from the so-called “IQ tests”, because if you take one of them, it will reveal something that will not make you happy at all.*

This, at least, is a frequent view shared by many economists and others, based on the fact that the expected monetary payoff by playing the lottery is considerably less than the money you put into it. Dan Gilbert puts it very eloquently in his presentation on the 2005 TED conference (please watch 6:00-6:30):

Is this view correct? I enjoyed watching the panel discussion following Dan’s presentation, in which Jay Walker points out that there is more to the story (now watch 30:00-31:58 in the same video).

So what is the conclusion? As mentioned in a previous post, there are good reasons to believe the anticipation or pre-living of a positive event can be considered real happiness as well. However, it comes at the “cost of disappointment” if the anticipated event does not come true.

In other words, it makes sense to play the lottery if**: Lottery equation This raises the following questions:

  1. Are scenarios possible in which the equation is > 0?
  2. For which type of person is it (significantly) beyond zero? For example, what are the personal characteristics/mindsets that increase the joy of playing?
  3. What can lottery players do to further increase the value from playing?
  4. What is the implication for lottery companies? How can they target their clients more effectively and increase value for clients?

1.) Are scenarios possible in which the equation is > 0?

While the equation above only conveys the main components (and cannot be used to calculate it mathematically and thereby providing “proof”, at least I don’t see how this could work), two thoughts strongly point to the fact that it can be > 0:

  • Elements of the equation are not exactly inversely linked: Although some elements are interconnected to a certain extent (e.g. high anticipation may lead to high disappointment), they can also move independently from each other (for details see below), thereby making it very likely that there are combinations that makes the equation positive for some people.
  • Many people play, and play consistently: It’s true, people do stupid things, but at the point where the same people do it over and over again it’s better to assume that we missed something, and that it does give people more reward than costs, although at first it might be hard to spot why that is.

2.) Player characteristics/mindsets that may enhance value from playing

Who are the players that get most value from playing based on the equation above?

Benefits of anticipation

The benefits of anticipation are especially high for those who…

  • See a very high value in a possible win, either because they actually need the money to fulfil basic needs (low income), and/or because they believe that significant wealth would solve all their problems (which is questionable). The latter perception may be because they only see the advantages of being significantly wealthy (optimistic and/or uncritical).
  • Think a win is more likely than it actually is, e.g. because they see last week’s lottery winner interviewed on TV and perceive that this is very close to them standing in front of the camera (“empathy”), accompanied by less critical reflection (uncritical / emotional rather than rational).
  • Can anticipate/imagine a possible win vividly (emotional / capability to “dream”)

Cost of disappointment The costs of disappointment are comparably low for those who…

  • Are used to not winning, e.g. because they have played frequently in the lottery before
  • Can generally manage to deal with disappointments well (positive nature / forward-looking / optimistic)
  • Can replace their disappointment with other positive emotions, e.g. the anticipation for the chance next time when playing (frequent player and high benefits of anticipation, see above)

Value of money to play in lottery The (perceived) value of money to play is low for those who…

  • Don’t need to pinch every penny, i.e. are not poor
  • Underestimate the effect of small costs accumulating (in case of regular players), e.g. due to an uncritical / non-analytic mindset

Please do not get me wrong: I do not mean that the highlighted character traits apply to every lottery player; they may only have an enhancing effect on the value that people can extract from playing in the lottery. I, for example, can now well imagine trying out lottery going forward (I didn’t use to), although I don’t see all mentioned character traits apply to me.

That said, it would indeed be interesting to further think of what groups (gender, age, nationality etc.) fit the profile well, and whether there is a higher ratio of lottery players in those groups compared to others. Have there been any profile analyses of lottery players? I am sure there have, but I have not come across any yet. Have you?

3.) How can lottery players further increase the value from playing?

A possible suggestion could be to make a highly rational and conscious decision on whether to play or not, especially having a close look at all the drawbacks (e.g. how much money will it cost in the next year? Can I really afford it? Does it make more sense to spend it on other things? Etc.).

If you decide to play, you should:

  1. Maximize the benefits of anticipation, e.g. by vividly imagining a possible win and all the advantages it would bring (reducing rationality here is ok)
  2. Reduce the costs of disappointment, e.g. by not allowing any grievance due to a loss but looking forward to the next chance
  3. Keep the perceived value of the spent money low, e.g. by thinking of other big expenditures that show the negligible costs of playing the lottery, (only if the rational pre-check has confirmed this, of course!)

From time to time a rational “checkpoint review” should be performed to see if playing is still well founded (e.g. every 6 months).

It’s interesting to see a specific example which shows “rationality” might, in some cases, be an obstacle for us to maximize the pleasure of an experience (e.g. prevents us from pleasurable “dreaming”).

What is your opinion? Is the proposed selective use of rationality possible and can it be recommended (this is all just brainstorming here)?Alternatively, might it risk slipping into a full-time non-rational behaviour?

4.) What are the implications for lottery companies?

First, lottery companies should understand they could add real value to people. I have never worked for a lottery, nor do I know anybody who does, but I would not be surprised if even in some lottery’s marketing departments a common thought may be “where do we find people stupid enough to give us their money? Let’s do some advertising there”.

So where can people be found who get value from playing, i.e. what are the relevant client segments and how can they be targeted more effectively? As mentioned above, it would be interesting to identify groups with an above-average proportion of character traits which add value to playing, thereby providing the basis for marketing approaches. The analysis of this question would go beyond the scope of this article, but is certainly also an interesting topic to look into.

In addition, lottery companies should also think how to increase the value they provide to players overall. For example, lottery companies may consider selling more ticket bundles instead of single tickets (e.g. for 10 draws). Apart from the effect that players may get used to playing (which may also increase client retention, but that is not what I am driving at here), the actual value lottery players get from playing may increase, as being used to playing – and therefore losing, as is mostly the case – the “costs of disappointment” are reduced (see above).

Final words

Coming back to this post’s title question: there seem to be good reasons to assume that lottery players are not stupid, at least not based on the fact that they are playing the lottery 😉 For some people, with the right attitude and mindset, the lottery can give them as much or more reward than costs.

Please note this article does not aim to propagate gambling in any form, but to give a more fair assessment of lottery’s impact on our happiness (which monetary costs should not amount to more than a negligible amount per week, where “negligible” is to be defined individually). Without having looked at it in detail, I also do not believe that the “slippery slope” argument holds, i.e. that playing the lottery is the first step into serious gambling addiction. On the contrary, I believe that playing the lottery can provide a buffer zone to that.***

So if you have not played lottery before and start playing now based on what has been said in this article: if you win and get filthily rich, do not forget that 1.) I made you to do play and 2.) Showing gratitude to other people can be a highly rewarding experience 😉

*) I guess this qualifies as breaking the fundamental writer’s rule to “never insult the reader”. I hope you keep on reading anyway.
**) This equation leaves out the possibility of actually winning – and the benefit that comes along with it – however due to a typically very low probability of winning, a hard-to-predict and multi-faceted impact of wealth on happiness and for matters of simplification let’s stick with the above formula for the minute.
***) Are there addicted gamblers who play the lottery? I have not done any research on this, but for some reason I cannot picture an addicted gambler to be a regular lottery player (or having started out as such).

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