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Why it's OK to Play the Lottery

Amongst the multitude of gambling options present in our society today, one form stands out as being a bit different. Lotteries, in a landscape ranging from the innocuous charity raffles right up to the high intensity betting found in the large casinos, it alone manages to raise billions in tax revenue, have the lowest payout rate, terrible odds of winning and a far higher participation rate than any other major game while at the same time managing to maintain a socially acceptable status as just a bit of harmless fun with free and easy access to tickets right across the whole community (Ariyabuddhiphongs 2011). This essay will examine the different facets of the game in order to define the difference between Lottery play and other forms of gambling. It will then look at who plays the lottery, why they choose to play it and if there is any significant social harm associated with that play in an attempt to determine if the position currently held by the lottery in relation to other forms of gambling and within society is justified.

Primarily, the major differences between playing the Lottery and other forms of gambling are striking and on the surface, when combined actually make the widespread popularity of playing the Lottery a little hard to understand. First, the odds of winning the lottery are quite staggering. A standard six from 45 lottery ticket has a less than one in eight million chance of hitting the correct combination of numbers to qualify for a win. Secondly, the payout rate through the lottery is very low at about 50%. This means that for every dollar spent on tickets, only 50 cents is returned as prize money. If you contrast this with other games such as racing at around an 80% payout rate or blackjack where the payout can be as high as 98% (Clotfelter and Cook 1990, p.106) the rational conclusion would be that the Lottery represents a bad investment.

Taken on their own, the lack of rational judgement, the payout rate and odds of winning would make a compelling argument for tighter regulation however it must be noted that they are balanced out by the fact that Lottery gambling is of very low intensity. With draws for most games occurring weekly, while it is possible to spend a lot on lottery tickets, it is not so easy to impulsively chase losses as is the case in other high intensity games (Forrest, Gulley and Simmons 2010, p.36). In addition to this, the prizes are huge in relation to the cost of the ticket. One dollar spent on a ticket can return you literally millions of dollars in prize money. Together, these factors help account for the lack of rational judgement displayed in the statistics.

Identifying how many people play the lottery and who they are is a relatively simple process as there are many pre-existing papers from both Australia and abroad that track household spending on gambling. These papers, broadly speaking fit into one of two categories when looking at participation rates and demographics. Worthington et al. (2007) is an example of the first group which make use of short term expenditure surveys to track lottery spending where Welte et al.(2002) is an example of the second group that makes use of a much longer time frame surveys, often of up to a year. This distinction is important as the data collection method and time period covered will strongly affect the results and hence it must be taken into account when interpreting the findings. Worthington et al. (2007, p.213) puts the total participation at around 35% for Lottery type games where Welte et al.(2002, p.319) states that it is about 66% with both being fairly typical results. On the face of it, a large discrepancy until you take into account the different time periods of the studies. In actual fact, both figures are correct and reflect the fact that lottery participation is largely occasional with ticket sales for a given draw being heavily influenced by the size of the prize on offer. It is these occasional players that are missed in the shorter timespan datasets.

As fits in with the very high participation rates, the picture built up by the analysis of these survey groups is one of broad and widespread participation across all age groups, ethnicities, education levels and socioeconomic status groups. Barnes et al. (2011) finds that across the age spectrum, the participation rates were lowest for the young and the old with rates at around the 50% mark with those in middle age having the highest participation at up to 70%. They also find that when looked at from a socioeconomic standpoint, although again participation is widespread right across the spectrum, there is a pronounced bias toward those less well off at greater than 60% participation down through to around a 40% participation rate for those in the highest socioeconomic group, a finding also borne out by Weinbach and Paul (2008) who show that lottery spend tends to increase around the time that benefit payments are received. When considering race, in general terms participation is again wide spread however people of a Middle Eastern and North African decent in Australia (Worthington et al. 2007) and of Asian descent in the United States (Barnes et al. 2011) tend to participate to a lesser extent where those of Native American decent were far more likely to play. Interestingly though, this heavy bias toward the indigenous population in lottery play is not seen to the same extent in Australia (McMillen and Donnelly 2008; The SA Centre for Economic Studies, The School of Psychology (University of Adelaide) and Harrison Health Research (Adelaide) 2008).

With Lottery play crossing so many demographic boundaries and with the aforementioned game characteristics, why do people choose to play when rational thought suggests that it is such a bad investment? It has been found that the reasons people play are for the prize money, fun and the challenge (Lam 2007;  Miyazaki, Langenderfer and Sprott 1999) however, this in itself can be seen as another example of irrational behaviour displayed by gamblers as the game itself is entirely chance based with no skill required for play. This irrational effect was seen by Sévigny and Ladouceur (2003) where people with seemingly rational ideas of chance gambling were able to switch off their rationality while playing and is furthered by Williams and Connolly (2006) where it was found that specific education about gambling probabilities did not change the way people play. In addition to these factors, Guryan and Kearney (2010) identified a specific pattern of behaviour associated with lottery play that fits the economic definition for addiction, a finding that could indicate that once started, lottery participation is likely to continue for those susceptible to these addictive qualities.

Unlike identifying who and why people play the lottery, determining the amount of harm associated with that play is substantially harder to do. A case in point is that of the source of money used to buy lottery tickets. Kearney (2005) finds for instance that the money for lottery tickets is likely sourced from other non-gambling related spending where Forrest, Gulley and Simmons (2010) find the opposite in that there is substitution between spend on the lottery and other forms of betting. Daraban and Thies (2011) choose to look at Lottery play through the prism of the increase in bankruptcies that is causes but also site Edmiston (2006) in their work who found that lottery participation decreased the likelihood of bankruptcy. Moving away from looking at purely economic arguments, Namrata and Oei (2009) found that in an examination of problem gamblers, those with the most serious problems tend to play the lottery significantly less than those with milder symptoms and that both groups participate far less than the average participation rate of the community at large. From this we can deduce that while problem gamblers do play the lottery, it is far less appealing than more intense forms of gambling. Finally, one other point that should be considered is how a win affects the winner. Anecdotally, winning a large sum of money can lead to an increase in stress and a degradation in wellbeing as the winner is targeted by greedy opportunists and the like. Nelson and Beggan (2004) however manage to debunk these myths by identifying that they come about through a self-serving bias in the judgment of how others would deal with a win as compared to the self.

To conclude, while it is true that literally billions of dollars are gambled playing lottery games each year, that spend is spread over very large cross section of the community. Despite the fact that the participation is skewed toward those with a lower socioeconomic status, the people with the real gambling problems tend to find the game less appealing due to its low intensity play. If you add to this the conflicting reports about the economic harm inflicted on the source of funds for gambling and associated bankruptcies we are left with the conclusion that the relationship to these problems is more likely to be one of correlation than causation and that the socially acceptable position that the Lottery currently holds in society is probably correct.




References

Ariyabuddhiphongs, V 2011, ‘Lottery Gambling: A Review’, Journal of Gambling Studies, vol.27, no.1, pp. 15–33

Barnes, G, Welte, J, Tidwell, M and Hoffman, J 2011, ‘Gambling on the lottery: sociodemographic correlates across the lifespan’, Journal of Gambling Studies, vol.27, no.4, pp. 575–586

Clotfelter, C and Cook, P 1990, ‘On the Economics of State Lotteries’, The Journal of Economic Perspectives , vol. 4, no. 4, pp. 105-119

Daraban, B and Thies, C 2011, ‘Estimating the Effects of Casinos and of Lotteries on Bankruptcy: A Panel Data Set Approach’, Journal of Gambling Studies, vol. 27, no. 1, pp.145-154

Forrest, D, Gulley, O and Simmons, R 2010, ‘The relationship between betting and lottery play’, Economic Inquiry, vol.48, no.1, pp. 26–38

Guryan, J and Kearney, M 2010, ‘Is lottery gambling addictive?’, American Economic Journal: Economic Policy, vol.2, No.3, pp. 90–110

Kearney M 2005, ‘State lotteries and consumer behaviour’, Journal of Public Economics, vol. 89, no. 11–12, pp. 2269-2299,

Lam, D 2007, ‘An exploratory study of gambling motivations and their impact on the purchase frequencies of various gambling products’, Psychology & Marketing, vol. 24, no. 9, pp. 815–827

McMillen, J and Donnelly, K 2008, ‘Gambling in Australian Indigenous Communities: The State of Play’, The Australian Journal of Social Issues, vol. 43, no. 3, pp. 397-426

Miyazaki, A, Langenderfer, J and Sprott, D 1999, ‘Government-sponsored lotteries: Exploring purchase and nonpurchase motivations’, Psychology & Marketing, vol. 16, no. 1, pp. 1–20.

Namrata, R and Oei, T 2009, ‘Factors Associated with the Severity of Gambling Problems in a Community Gambling Treatment Agency.’ International Journal of Mental Health and Addiction, vol. 7, no. 1, pp. 124-137

Nelson, J and Beggan, J 2004, ‘Self-Serving Judgments About Winning the Lottery’, The Journal of psychology, vol. 138, no. 3, pp. 253-64.

Sévigny, S, and Ladouceur, R 2003, ‘Gamblers' irrational thinking about chance events: the 'double switching' concept’, International Gambling Studies, vol. 3, no. 2, pp. 149-161

The SA Centre for Economic Studies, The School of Psychology (University of Adelaide) and Harrison Health Research (Adelaide) 2008, Social and Economic Impact Study into Gambling in Tasmania Volume 2: The Prevalence Study, The Department of Treasury and Finance, Tasmania

Weinbach, A and Rodney, P 2008, ‘Running the Numbers on Lotteries and the Poor: An Empirical Analysis of Transfer Payment Distribution and Subsequent Lottery Sales’, Atlantic Economic Journal, vol. 36, no.3, pp. 333-344

Welte, J, Barnes, G, Wieczorek, W, Tidwell, M and Parker, J 2002, ‘Gambling Participation in the U.S.—Results from a National Survey’, Journal of Gambling Studies, vol.18, no. 4, pp. 313-337

Williams, R, and Connolly, D 2006, 'Does learning about the mathematics of gambling change gambling behavior?', Psychology Of Addictive Behaviors, vol. 20, no. 1, pp. 62-68

Worthington, A, Brown, K, Crawford, M and Pickernell, D 2007, ‘Gambling participation in Australia: findings from the national Household Expenditure Survey’, Review of Economics of the Household, vol. 5, no. 2, pp. 209-221



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