The Decision Strategist

When I remember, I buy a powerball ticket every week. I’m astounded at how much confusion researchers express as to why people buy lottery tickets. Sociologists attribute it to social networks and discussing it with others. Psychologists suggest that it is an impulsive response to feeling lucky or being in a good mood. This guy thinks they are a “tax on stupid people”. Emily Oster believes that people buy powerball tickets because they are fun. I think she is mostly spot on, with a few caveats.

Fun And Dreams, Not Finances

Lottery tickets are fun. For $1, You get several hours of excitement wondering whether you will win. You get the joy of fantasizing about what you would do with the money. You get to talk to other people about what you would do with the money, how nice it would be not to work and whether you would quit work the next day (there’s a lesson in this that employers should ask their employees: “If you won the lottery would you keep working?”).

It’s also about the dreams and desperation. MSN Money says that 20% of people who play provide 82% of the purchases, and that those people are disproportionately low income and less educated. I don’t think that their reasons for purchasing more tickets have to do with not understanding the odds or not knowing that they are throwing money away. I think it has to do with how bad your situation is. If you are deep in debt and on the verge of not making your rent, then saving that $1 isn’t going to help, and it will provide a ray of sunshine in an otherwise bleak existence (anyone see Fun with Dick and Jane?).

All Things In Moderation

I’m not talking about people who cash their paycheck and spend $50 on powerball tickets. If you do that, you probably should stay out of casinos. Maybe this is what people refer to when they say that lotteries are a “tax on stupid people”. But to me $52 dollars a year for some fun is pretty cheap.

Of course, if you took that $52 and invested at an 8% return for 30 years, you’d have $5,890.73. Which might buy you a coffee by then with all this inflation.

Point being that we can get a little crazy about trying to always make the right decision, and sometimes it’s good to relax and let yourself enjoy something. Have a good weekend and tell me your reasons for purchasing lottery tickets!

-zot

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This entry was posted on Friday, August 17th, 2007 at 1:59 pm and is filed under Finances, Fun, Probability.