The lottery

An opinion about lotteriesssss

You won't win

Grand prize

Chance to win: 1 in

Initial ticket price:

Cost to run lottery(wages, printing, advertising, capital, profits...): %

VAT: %

Prize tax: %

Actual grand prize:

Actual ticket price:

Money wasted :

I made this calculator. it's not exactly how lotteries work in the real world, but it should give you an idea. If you enter just 100 as the grand prize, 1 in 10 chance, and buy a ticket a few times, without taxes(Click here to do that), you can already see how dissapointing it is. Again, these chances are comprehensible. 1 million grand prize and 1 in 100k, minor taxes, you can hold enter on the buy ticket button and it's entirely possible that you do that for 1 minute and still won't win anything(click to set). It's statistically ~5 times more likely you were murdered by living in the US in 2016(NP/UNSDC/CTS). But to me, all of this still does not make me feel like I understand the bizarre odds of winning a lottery. I cannot emphasize this enough. If you buy thousands of tickets, you still have extremely crappy odds of winning.

I also made a preset based on how stuff is in the Netherlands(Click to set). I calculated it in the marketing strategies section.

Other comparisons

In the background, you'll see an orange part. That part also represents the win chance; if you pick a random pixel on the webpage, you'll win if it's orange. But you'll lose if it isn't. There's also a purple pixel; that represents a fraction of a pixel. The dimmer it gets, the less chance you have. There are currently ? pixels on the page.

Tax

You know, some mathematicians call the lottery a tax for stupid people. Given the probability of winning, you can see why they say this. My hypothesis is that it's just that our brains are flawed. They cannot comprehend the chance of winning the lottery. Your brain thinks it's much higher than it actually is. Using statistics we can see it's a losing game.

In the Netherlands there is a company called "Nederlandse Loterij", meaning Dutch lottery. It owns a lot of dutch lotteries. It's 99% owned by the government of the Netherlands.[1] So it's almost like a real tax

In the US, there are a lot of lotteries owned by individual states. They provide income for states. Same story here.

Influence on the outcome

Some people seem to believe if you believe enough you're going to win, you are. But that's not true. if you flip a coin and believe it's going to be heads, has the same odds of just landing on heads when you don't believe it's going to be heads. You can try this in the above calculator as well.

People probably participate in the lottery because they think they have a chance. Statistically speaking, you have a chance. But realistically, you don't. Yet all these people buying lottery tickets thinking they might win. But they're not. Millions of people every year don't win the lottery, but they do lose money.

"Investment"

Some people say that it's an "investment". No. It's speculation, and therefore, consumption. Take the one million example again. The chance that you get return is 0.001%. The risk you have of losing all your "investment" is 99.999%. A huge risk. Clearly, not an investment.

An investment would be solar panels on your roof(if you'd have a suitable roof and electricity isn't ridiculously cheap). Or seeds for a farmer to grow crops. Or food to eat so you can survive and produce stuff later on. But not unnecesary food, that would be consumption. Anyways, an investment is something of which in the future not only you gain from, but also the world. With solar panels, you get electricity and save money. With seeds for farmers, people can get food, and also make the farmer get some returns(hopefully). A video about this.

A lottery makes a lot of people slightly less wealthy in favor for a few lucky winners. All this money could have been used for other good things.

Charity

Some people say "well uhm even if I lose some of my money still goes to charity". For quite a few lotteries, a portion of the money goes to charity, that's true. but if you want to donate to charity, you can better do it directly, that way a bigger portion of your money goes to charity.

Alternatives

Don't participate in the lottery. Instead, save it. That way you get richer, guaranteed. Granted, not a lot, but it accumulates over time. Let's say you pay 10 euro a month for the lottery. And you decide to quit, and instead save that money. After a year, you have got yourself 120 euros extra.

The average spending in the Netherlans: If I pick the total money spent on lotteries in the Netherlands(1848 million EUR) and divide it by the population(~17 million) times percentage of population who participate in lotteries(~54,4%)(lotteryMoney / (population * populationPercentage))(numbers for 2016) I come at an average spending of 200,08 EUR per year per dutch lottery participant. More numbers: the gross(not net) average return per inhabitant for the Netherlands is 69 EUR. Doing the same calculation except with 100% yields spending per inhabitant at ~108,84 EUR. So that means that lotteries take quite some cut. (65 / 108,84) * 100 = ~59,72 %. So roughly ~40,28% is the average "cost", taken by the lotteries. This calculated percentage seems roughly consistent with cashflow of lotteries described in a marketscan(see reference 5, page 44)

Marketing strategies

The postcodeloterij("postal code lottery") is a dutch lottery based on your postal code; prices fall on a random postal code in the Netherlands, and is divided by ticketholders in the postal code. It can also be a street or neighbourhood. There are a lot of different prizes. Participation is done via automatic collection. Every month money will be gathered from your bank account when you don't explicitely say you don't want to participate anymore. The lottery also appears on TV shows, mainly the commercial ones. It is unique in a sense that you can feel like you've lost even though you didn't play; if your neighbour won the lottery, you could've too, if you'd just bought a ticket(is the fear of missing out a factor in participating? EDIT: yes it does. Fear for regret and the idea your neighbours will be rich and you won't are a factor in participating in this lottery[7]). However, the chance of this happening is really small. Moreover, if you buy a ticket and lose, you have actually lost. And this chance is much, much bigger: almost guaranteed.

Perhaps another factor of participating in the lottery is the notion you would be happier when you get money. It turns out, money does not buy happiness directly. But the lack of money does buy misery.[4]. However, participating in the lottery when you're in financial distress is a terrible strategy. It will make your situation even worse, because you practically won't win, yet you are spending money that could have been used to make your situation better. A better strategy is probably to search for help, and to learn how to deal with money effectively. For general help, you have in the UK this, but search online for your local financial help thinggy.

Also, a friend of mine told me that some lotteries in the Netherlands give consumable goods(cheap chocolate, some shampoo, etc) when you don't win. Or you "win" that. That way, I suspect, you're less inclined to abort buying tickets, since you get some sort of return. I think that's a cheeky strategy. But you aren't getting that for free, you're paying for that indirectly, making your losses even worse. These lotteries are automatic and are likely paid by automatic collection.

The payout percentage(what's left over after cost, if you will) is 30%. For every euro only 30 cents makes it back in prizes. 50% goes to charity and the other 20% is "cost". On prices there is a 29% tax. So for every euro only ~21 cents ends up in prizes.[6]. there is no VAT for lotteries in the Netherlands[8].

SCIEENCE

We got some cool science out of lotteries though.

A cool paper examined Florida Lottery winners. A comparison was made between those who got large prices between 50000-150000$ and those with small prices of <10000$. Those who got large prices postponed their bankruptcy, but did not prevent it. Also, large winners had similar net assets and unsecured debt as the small winners.[2] You'd think that if people in financial misery got a large amount of money they would be able to pay off a lot of debt and increase their equity and liquidities. Perhaps it's because they got in financial distress because they didn't know how to deal with money, and that giving them money doesn't work because they still lack proper financial knowledge? The paper also talks about this in the introduction.

Another paper looked at the neighbors of the winners; the very close neighbors of lottery winners were more likely to file for bankruptcy[3]. Not by extreme numbers, thankfully. It seems this is because the lottery winners are increasing their "visible" assets(i.e. luxury goods, houses, cars)(conspicuous consumption). This leads to a peer effect; neighbours want to keep up, decreasing their financial assets. This increases the risk of default. However, I haven't really read the paper carefully, soooooooo yeah. But I think this is just amazing.

Conclusion

I think lotteries are weird. I don't see why I would buy a lottery ticket. The odds of winning anything are too low - beyond my comprehension; and I don't see any other value lotteries bring.

If you've ever bought a lottery ticket, and feel embarassed about this, don't feel embarassed. You're not alone, it's probably not your fault. It's probably our brains that think you've a reasonable probability of winning. It's never too late to change your behaviour. In the end, it's your decision where to put allocate your assets. Appreciate you regardless. have a great day.

Next time you see a lottery ticket and are tempted to buy it, you can think something like this: "ha! I'm not going to lose money by buying a lottery ticket!". Or something like that. I don't know.

References & other information

1: Jaarverslag Beheer Staatsdeelnemingen 2017, page 77 (Dutch)

2: Hankins, Scott and Hoekstra, Mark and Skiba, Paige Marta, The Ticket to Easy Street? The Financial Consequences of Winning the Lottery (March 26, 2010). Vanderbilt Law and Economics Research Paper No. 10-12. Available at SSRN: https://ssrn.com/abstract=1324845 or http://dx.doi.org/10.2139/ssrn.1324845

3: Agarwal, Sumit and Mikhed, Vyacheslav and Scholnick, Barry, Does Inequality Cause Financial Distress? Evidence from Lottery Winners and Neighboring Bankruptcies (2016-02-11). FRB of Philadelphia Working Paper No. 16-4. Available at SSRN: https://ssrn.com/abstract=2731562

4: Lesson 7 in the book: How to be miserable by Randy J. Paterson. ISBN: 978-1-62625-406-0

5: Marktscan landgebonden kansspelen 2016 (Dutch)

6: Jellinek: hoe werkt de postcodeloterij (Dutch)

7: Zeelenberg, M. 2004. Consequences of regret aversion in real life. Organizational behavior and human decision procecesses. link

8: belastingdienst (Dutch)

Brickman et al. (1987) "Lottery winners and accident victims: is happiness relative?" doi: 10.1037/0022-3514.36.8.917

Kaplan, H. Roy (1987) "Lottery winners: The myth and reality" doi: 10.1007/BF01367438

Larsson, Bengt (2011) "Becoming a Winner But Staying the Same: Identities and Consumption of Lottery Winners" doi: 10.1111/j.1536-7150.2010.00768.x

Funny video about the lottery by iDubbbzTV

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