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The Psychology Of Lotteries
The loop
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.
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Lotteries
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.
More likely to buy tickets
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.
The loop
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.
Changing the lottery system
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.
- A solution would be to stop marketing and advertising lotteries that target the poor.
- States could promote and offer more games that appeal to wealthier players.
- Financial institutions could issue investment instruments that have lottery-like qualities.
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Winning A Lottery
Human beings are not wired to grasp the concept of probability. A chance of winning a lottery, sometimes 1 in 175 million, is not something that bothers us.
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The Steady Appeal of The Lottery
The steady appeal of the lottery is due to various psychological tricks by the marketers: suspension of logic and reason and the dreams that it sells.
Using the variable rewards concept of psychology, the marketers ensure that people keep buying their tickets for years, by introducing smaller wins with much better odds. This helped lottery buyers experience the thrill of a win.
Playing the Lottery for Entertainment
The odds to win are so small that winning does not even feature in our decision matrix of buying a ticket. The game of lottery isn’t played on logic, or for investment, but for entertainment.
For as little as two dollars, a person dreams of getting a chance to win thousands of dollars, and that dream is worth the price of the ticket. The bigger the jackpot is, the more the dreams are fed.
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Common investment questions
Two of the most common investment questions are "what do you invest in " and "what are the best investing strategies"?
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Shady investment advice
Bad investing advice can come from many quarters, such as wealth expos or financial advisors. If anyone promises you any type of return over 12%, 99% of the time, they are probably playing you.
There are great financial advisors out there, but many people who sell investment products just want your money. However, it's not that hard to invest for yourself.
How to avoid bad investment advice
- Never buy a financial or investing product from someone you just met.
- Getting returns over 12% per year is ridiculously hard. If it sounds too good to be true, it is.
- If you don't understand it, don't invest in it.
- If one of your friends recommends an investment that's making them a lot of money, they are probably suckers too. If you see the "results not typical" on any marketing materials, move on.
- There are no "secrets of the super-wealthy" that anyone will sell you for $500 or that you can take advantage of unless you have hundreds of thousands of dollars.
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