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**: 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?

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”)

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)

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).

We’ve all experienced the phenomenon of having high expectations for something, only to discover the actual experience is not as rewarding as we imagined it would be. Either the actual experience is below our expectations, making us disappointed, or it matches our expectations (or overachieves them), but because we’ve already expected it, we are only slightly more happy.

The same is true for the opposite: when we experience something surprising, and it turns out to be enjoyable, we perceive it as especially satisfying as we did not expect to get anything from it before.

Why are expectations so important?

Asking “why” might appear unnecessary at first, because it is such a common and seemingly well understood phenomenon we don’t see any point asking (just like with what is happiness?). We know it from experience; however, this is only an observation. This article aims to initiate a discussion about possible explanations.

It is possible this phenomenon exists because by expecting something, we actually already pre-live the expected moment today and if it does not materialize in reality it is an actual step down on the ladder. When we are expecting something to a high extent, and therefore are partly in the state of living it, it is already part of our reality.

Another angle to look at it: we are comparing “imagination” (2.) with “reality” (3.) here, but what does “reality” actually mean? The situations are not as different as they first seem: both are modelling of the world in our head, and therefore are on the same fundamental level. Pre-living or living, it’s our brain that does the interpretation either way.

What are the statements/implications of this model?

1. The more we can pre-live the future moment (or “emotionally model it in our brains”), the higher the expectations can be, and the higher the potential disappointment
   Our capability to pre-live future happenings is different from event to event, which therefore also has an impact on what we “emotionally expect” from it, and thereby the implications on happiness are different.  

   For example, “taste” is one of the dimensions which is not easy to pre-live. On an intellectual level, you can expect a lot from a restaurant you are visiting where you’ve heard they serve good food, and therefore can also be disappointed if they don’t, but the emotional letdown is limited, because you couldn’t pre-live the experience authentically beforehand.

   On the other side, there are events that you can picture very strongly, and might even be a victim of incorrect or overblown, vivid expectations. A classic example is a holiday. We tend to remember the positive peaks of our last holidays, which we can re-live very well (by remembering of how great it was), and therefore run the risk of expecting it for future holidays as well, which may make the holiday not as enjoyable as it could have been.

   Another example is wealth. We can picture very well of what it would be like to be very wealthy (we tend to focus on the positive, thinking of all the things we could afford which we couldn’t in the past, leading to positive emotions), therefore the letdown can be very high when we realize it’s not as good as we imagined it to be (also see “Money: how much should we strive for it to become happy?”).
    

2. An event that would have given us happiness (if we hadn’t expected anything from it) can cause us to become unhappy/less happy than our initial state due to our expectations 
   Due to a potentially strong letdown effect if our expectations are not met, it’s possible that they cause an event to make us actually unhappy and worse off than the initial state, although the event did have the capability to make us happy if we hadn’t had the chance to build up expectations.  

3. Vice versa is true for negative events
   The same implications seem to be true for events that are not expected to raise our happiness, but do the opposite: if we expect a dramatic event to happen which would make us substantially unhappy, the better we can picture and pre-live it emotionally, the more the relief if it does not come true.
    
4. Pre-living is just as a real joy than the actual happening (and has to be taken into the equation)
   As expectations can have negative effects on our happiness one is tempted to search for tools to batter down expectations as much as possible. However, this would ignore that the joyful pre-living and looking forward to events (which is also “real”) is happiness as well, and one which can be substantial in some cases.  

   Also, a positive spirit driven by expectations can help us to make most out of the actual event (a depressed traveller who “succeeded” in imagining the trip to be horrible does not act in a way that can make it as enjoyable compared to the traveller who is open for experiencing many new things due to his positive, expectation-driven mindset).

   Likewise, expectation of a negative event may cause real unhappiness despite the event never materializes. People who live in constant fear of terrible things can hardly be called happy, independent from whether the fears come true or not.

One of the following posts will aim to provide a practical guide on how to try to get the expectations under control. Unfortunately, the recommendation “lower your expectations” alone does not work, because emotions seem to have some difficulty understanding advice on an intellectual level. Before that, however, I am happy for feedback as always.