Lottery. A tax on the math-challenged.

lottery line big prize

Lottery – another tax on the poor?

It’s well-known common-sense knowledge that winning the lottery is very unlikely.  What is ‘unlikely’, though, and how does the individual react to probability in his/her daily life?  Everyone knows what ‘even odds’ mean – a coin toss, an equal probability that one of two outcomes will occur. This is written, as 1:1, or one in one chance. What were the published odds of the recent $1+ BILLION powerball lottery?  According to this source, it is 1 in 292 million, or written in the above notation, 1:292,000,000. Can the average person even comprehend such odds and evaluate the ‘investment’ they are making in their $2 ticket? For comparison, the odds of being killed by a shark during a lifetime are 1 in 3,748,067, while the odds of being killed by lightning are 1 in 79,746. So, you are how many times more likely to die from shark attack than winning the giant powerball jackpot?  Yes, almost 78 times more likely.  How, then, is risk evaluated by people, and what effect, if any, does income and education have on making such evaluations?

Risk

First off – what is risk? Risk is the uncertainty of a particular outcome. What are you risking by competing for the powerball jackpot? The price of a ticket – $2 is what you are risking, with the outcome being a loss of your ‘investment’ or the winning of, say, $1.5 Billion. You stand to multiply your investment by 750,000,000, but the odds of doing so are 1 in 292,000,000. The ‘risk’ of this transaction seems either really simple or really complicated, doesn’t it? Well, what was discovered was that your education level has a direct correlation on how you view this whole transaction.

gambling by income and education

Nonplayers have the highest incomes from the groups defined in the above graphic, and they tended to have a college education, in contrast to the players.

The ages of people who spend the most days gambling on the lottery are from 30 to 70 years of age, according to an NIH study.

So, the poorest and least educated people are the ones who believe that betting $2 to have a 1 in 292,000,000 odds of winning $1.5 Billion is a good bet, while college educated people making more money think this is a sucker bet.

What is the reason to have a lottery?

Why do we have a lottery in the first place? The official reason is that this is a way to fund some government programs, such as education, and is therefore an acceptable exception to most states’ anti-gambling laws.

But, unofficially, within many circles, this description is more accurate:

In their seminal work, Selling Hope, Clotfelter and Cook (1991) document the “two faces of the lottery.” On the one hand, the lottery is viewed as a “painless tax that raises public funds without coercion” (p. 9). Furthermore, lotteries are a popular form of entertainment. On the other hand, critics “view lotteries as a tax that falls disproportionately on the poor and uninformed” (p. 10). There is support for both positions in the gambling literature.    — source

 

Interesting (and sad) information about past lottery winners

Lottery burnouts

Life after winning

Horror stories

‘Winners’

lottery line big prize

jackpot lottery

 

 

Sources:

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4103646/
http://www.latimes.com/business/hiltzik/la-fi-mh-powerball-rules-were-tweaked-20160112-column.html
http://www.acton.org/pub/commentary/2016/01/19/moral-economic-poverty-lottery
http://www.usnews.com/news/articles/2016/01/12/odds-are-15-billion-powerball-winner-will-end-up-bankrupt


http://www.surfermag.com/features/what-are-the-odds/#tGQ63sd2kJOZOkRT.97


http://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=9828