The lottery is cheap permission to dream about the possibility of a better life. Most players know they won't win. People without lots of money are more likely to participate in lotteries. On average, households that make less than $12,400 a year spend 5 % of their income on state lotteries, making it a deeply regressive tax.

Lotteries

In an experiment, low-income participants were more likely to purchase lottery tickets when they felt that their income was low compared to a perceived standard.

More likely to buy tickets

Government-run lotteries appeal to poor people. This causes them to spend a disproportionate amount of their income on lotteries, which contributes to them being poor, which keeps them buying tickets.

The loop

There is clearly a demand for playing the lottery. But low-income people spend more of their income on the lottery than other income groups.<ul><li>A solution would be to stop marketing and advertising lotteries that target the poor.</li><li>States could promote and offer more games that appeal to wealthier players.</li><li>Financial institutions could issue investment instruments that have lottery-like qualities.</li></ul>

Changing the lottery system

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Why do people play the lottery? On the one hand, the answer is obvious enough: We're happy to spend $3 for approximately 15 seconds of irrational hope, for the pleasure of thinking about what might happen if we'd suddenly won millions of dollars. While most players know they won't win - the odds are a joke - the latex coated ticket is a cheap permission to daydream, to think about the possibility of a better life.
Not surprisingly, those without lots of money are more interested in such escapist pleasures. As I note in my recent Wired <a href="https://www.wired.com/magazine/2011/01/ff_lottery/all/1">article</a> on the statistician Mohan Srivastava, state lotteries have become a deeply regressive tax. On average, households that make less than $12,400 a year spend 5 percent of their income on lotteries.
Of course, this makes no rational sense: People without lots of money should be the least willing to squander their hard-earned cash on games of chance. (Lotteries have such terrible odds that they make slot machines look good.) However, a 2008 <a href="http://www.springerlink.com/content/771700m2wt7kt242/">paper</a> by a team of Carnegie-Mellon behavioral economists - Emily Haisley, Romel Mostafa and George Loewenstein - helps explain why poor people are so much more likely to buy tickets. The problem, it turns out, is feeling poor:
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In two experiments conducted with low-income participants, we examine how implicit comparisons with other income classes increase low-income individuals' desire to play the lottery. In Experiment 1, participants were more likely to purchase lottery tickets when they were primed to perceive that their own income was low relative to an implicit standard. In Experiment 2, participants purchased more tickets when they considered situations in which rich people or poor people receive advantages, implicitly highlighting the fact that everyone has an equal chance of winning the lottery.
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The study neatly illuminates the positive feedback loop of government-run lotteries. The games naturally appeal to poor people, which causes them to spend disproportionate amounts of their income on lotteries, which helps keep them poor, which keeps them buying tickets. Shortly after this study came out, I emailed with Loewenstein about its larger significance:
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LEHRER: Have these experiments changed how you feel about the lottery? Would you advocate any changes to the way the lottery system is run?
LOEWENSTEIN: Clearly there is a demand for playing the lottery, and people seem to get something out of it; otherwise they wouldn't keep playing. But it is well established that low income people spend a higher percentage of their income on the lottery than other income groups, so the lottery ends up taxing the poor at a higher rate when it makes much more sense to tax the rich at a higher rate.
The finding from our first study, that when you make people feel poor they play more, is especially sad since playing the lottery is on average a massively losing proposition. The propensity of low income individuals to play the lottery has the perverse effect of exacerbating their poverty. Although there are no easy solutions to the problem, one obvious one would be to cease marketing and advertising that targets the poor. It probably makes sense for the state to sell lottery tickets, because otherwise they will be sold by organized crime. However, does it really make sense for the state to be inducing, through advertising, poor people to play who wouldn't play in the absence of such inducement?
Similarly, states could promote and offer more games that appeal to wealthier players, such as Powerball, and not those popular with poorer players, such as instant scratch-off tickets. Another obvious solution, though one that is even less likely to be implemented, would be for the state to increase the payout on the tickets, and perhaps to increase the number of moderate size prizes.
Finally, a third option would be for financial institutions to issue investment instruments that have lottery-like qualities (for example, offered in small amounts, available at many convenient points of purchase, provide a small chance of a large upside) but offer a positive rate of return, providing the pleasure of playing the lottery without the steep cost. In many other countries "prize bonds" or other savings instruments are available that pay lottery winnings in place of, or in addition to, regular interest. Regulations in the United States have stymied the development of such offerings.
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Why do people play the lottery? On the one hand, the answer is obvious enough: We're happy to spend $3 for approximately 15 seconds of irrational hope, for the pleasure of thinking about what might happen if we'd suddenly won millions of dollars.

The Psychology Of Lotteries

Lotteries

More likely to buy tickets

The loop

Changing the lottery system

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