Lotteries: A Waste of Hope

It's an uncommon viewpoint, but one could, perhaps, justify the purchasing of lottery tickets as a "donation to charity" of sorts; the money goes to support the activities of the government that runs the lottery, which is (hopefully) going to use that money for good purposes. As a financial investment, though, lottery tickets are generally a bust; I suspect you'd do better playing slot machines at a Las Vegas casino. (There's the complication of rollover jackpots, but they don't have to matter here.)

Speaking of "wealth without effort"... I seem to find myself in the situation of having a strong aversion to the idea of working for a living, and although my current occupation of "mooching off my parents" satisfies my immediate needs, it is not a viable long-term career choice. This leaves me with two basic options.

1) Figure out a feasible strategy that will enable me to avoid needing to work for a living and is not less desirable than working for a living. (Going to graduate school counts as working for a living.) "Win the lottery" is an example of a strategy that fails the feasibility test; "become a prison inmate" would be an example that fails the desirability test. (I am as yet undecided about both the feasibility and desirability of marrying for money.)

2) Figure out a way to want to work for a living. "Become very afraid of the consequences of not working for a living" is one way I've considered accomplishing this, but deliberately inducing a fear of not working that's stronger than my current aversion to work would be, well, unpleasant, scary, and would require experiencing something that actually is worse than working. As I currently regard working for a living as only marginally better than the proverbial fate worse than death, it would take an awful lot to scare me into working.

Any advice? Bear in mind that I am, in fact, a lazy bum with time-inconsistent preferences and little willpower who once deliberately skipped an exam in college to play video games - and doesn't regret it.

The problem is not the claim that lottery tickets are usually a bad investment; the problem is the claim that they are always a bad investment. What if I have a portfolio of dreams requiring varying levels of investment and realism, and I think I want a lottery ticket to be one small part of my portfolio. Can you really be absolutely sure that I am wrong, no matter who I am or what my circumstances?

Robin,

I think the concern is not with people who buy the occasional lottery ticket for fun but with addicts who gamble away a large proportion of their available money.

I haven't defended people who spend large amounts of money on lottery tickets, clearly that is a disfunctional behavior.

But I have and do defend small-time purchase lottery tickets (at least up to $104 a year, that gets you one powerball ticket for each drawing). If someone wants to daydream about becoming a millionaire for much less money than daydreaming about hollywood stars in movies on a regular basis, I cannot call that a sin.

It seems to me that folks have all sort of utility functions that I do not. ...yet, we accept "entertainment" as a legitimate line item in a budget. If you enjoy going to the theater, but do not enjoy playing the lottery, what is the standard by which you can judge someone who has the reverse preferences as behaving stupidly ? If we look at the marginal cost of various entertainments (cable TV, buying hardcover books, etc.), playing the lottery isn't noticeably more expensive than any of the others.

Is there more to the attack on the lottery than mere classism?

More here.

I think you shouldn't just focus on the monetary outcome.

If you play a game for 4$ (winning 1Mio.$ with a probability of 1/500'000) whiches fair value would be 2$. So playing this game is rational if the thrill and the dream of beeing rich (as the non-monetary benefit of the game) is valued more than 2$ (a coup of coffee), which is very likely.

I can think of two biases that might cause an irrational decision for lotteries:

People tend to overweight small probabilities, so they calculate with a too large expected value.

Another problem might be, that people are not able to estimate the utility of a large amount (e.g. 2mio$). They think to be able to live the rest of their life in luxury without working. (But after paying taxes and your first sports car, there's not much left). So they calculate with a wrong (too high) expected utility.

Andrew, would potatoes chips be a "waste of taste", if some people eat too much of them? Is TV a "waste of time", if some people watch too much? Can we say that there is more of a tendency to buy too many lottery tickets than to do too much of any other thing one can do too much of?

TJIC, it might come from incomprehension of how playing the lottery actually has any entertainment value. I certainly have a hard time understanding this, as I fantasize about being rich already. Then again, I've never played the lottery so I don't know just how much it would change those fantasies.

I think that the problem with the lottery as entertainment is that it is only entertaining due to your cognitive deficiencies. If a person understood how likely winning actually was, playing wouldn't help them to dream of riches. OTOH, many (most?) people also take pleasure in pure conformity. I suspect that most occasional lottery players are in this class. They enjoy buying the tickets because they know that many other people buy them and therefore that buying lottery tickets is "fun". In most cultures, though possibly not in the contemporary culture of young Americans, this preference seems likely to be stable under reflection.

My feeling that it is appalling is thus simply the result of clashing utility functions and due to the tyrannical term in my utility function that values others valuing what I do and not valuing what I don't independent of any instrumental value to my other goals. Reflection suggests that there is also an opposing "diversity favoring" term in my utility function, and that the activation of these terms is significantly determined by my own drives towards cultural conformity, which when examined activate other terms indirectly and weakly condemning themselves but offering no alternatives other than by pointing weakly at some thus far unexamined region of concept-space. What a mess! The more one looks at one's mind the more miraculous it seems that the whole thing works as well as it does as often as it does.

Anyway, I can satisfy my inner tyrant for now by suggesting that it summon up out-group disdain at purchasers of diamond wedding rings rather than those of lottery tickets. The social externalities of the former behavior are larger, the underlying bias-hack less sophisticated and more overtly malevolent, and the socio-economic status of the condescended group more satisfyingly close to my own.

There is a big difference between zero chance of becoming wealthy, and epsilon. Buying a ticket allows your dream of riches to bridge that gap.

I'm not a fan of lotteries, but I don't understand how you can apply the rubric "bias" to their value, since nobody can measure the value of entertainment or distant hope for another. Just measuring the expected cash value is ridiculously reductive.

BTW, for the ultimate in bad reasoning about probabilities, see here.

TJIC wrote: If you’ve got something that costs $1/day and takes 5 minutes of work to deliver more joy to the average person than a lottery ticket, go off and sell it. If you actually sell it, then you’re right. If you either can’t come up with such a product, or can’t succeed in selling it, then you’re wrong, and your product is less pleasing. Either way, don’t call the consumer stupid. His job is just to like what he likes.

Let's get one thing straight: I think people should have a right to be stupid and, if they have that right, the market's going to respond by supplying as much stupidity as can be sold.

The customer is not always right, either factually or morally. Customers do stupid things. If you can exploit it better than anyone else, come up with an even better superstimulus, you may be able to drain even more money from them, but that doesn't make it right.

In this case, the customer is shooting their own foot off emotionally, not just financially. Do you think that our fantasies have no effect on us? Do you think that dreaming has no consequences that depend upon the dream? I doubt I'd be recognizably the same person if my parents hadn't been science-fiction fans. Yes, the lottery fantasy is enjoyable. So is smoking. People will pay for that fantasy. They'll also pay for crack. You may not think that crack should be illegal but that doesn't mean it's a good idea - and yes, I do dare to judge other people's revealed economic preferences. I am a rationalist, not an economist and my goal is to help people make better choices, not just model the ones they do make.

The customer's job is not just to like what he likes. This may be a fine thing to say to undergraduates in an economics course, whose immediate task is to predict and model customers - but what an utterly insane attitude to take toward real life! I have morals and purposes in my life that go beyond being someone's "customer", and so, I suspect, do you.

The customer's job is not just to like what he likes. Generally, if you want to know what your job is, you can ask your employer (who will respond "What have I been paying you for?"). We could take a somewhat-Lockean position that none of us truly own ourselves but have merely been entrusted with the duty of managing ourselves on behalf of God, but I would wager most on this blog do not believe in that "God" fellow, and if he did exist they might still be inclined to ignore his commands they found objectionable. I can only conclude that the customer has no job as customer other than the he/she gives him/herself.

Doug S.,

I don't know how to work around the time inconsistency of your preferences, but if you look time consistently at the span of your life with a relatively low discount rate (since you're likely to live many years regardless of what you do now), the best way to minimize the number of years that you will need to work is to accumulate assets in the short run while finding ways to keep your expenses low over both the short and long run.

It's entirely realistic for you to be able to retire after 10 years of work (and perhaps even fewer) if you can keep your expenses to 1/3 of your after-tax salary and get a 7% real return on your savings. I doubt that you're going to be able to work less than that over the long run by delaying work as long as possible -- more likely, you'll enter the work force with debts and have to work many extra years because of them.

Another problem with lotteries is that people tend to overestimate how much happier they will get if they become rich. They confuse the great happiness of becoming rich with the modest happiness of remaining rich. This would make them over-invest in lotteries. It would also make them over-invest in other activities that could lead to wealth, such as starting businesses.

I suspect that this same bias shows up in other areas as well. Losing weight is great but remaining thin is only good. Achieving your life goals is wonderful but having achieved your goals is just OK. These factors conspire to make us try harder to improve our circumstances than is perhaps deserved.

If the goal is actually to get epsilon hope, then let there be a lottery with one expected payout every five years, awarded at a Poisson-random time. You buy in once, and lo, at any minute you could receive a phone call saying you're a millionaire! It would still be a malinvestment of dreams but at least the epsilon hope would be financially cheaper. But this just gets us back into the lottery being a scam, not a service.

The goal of players may be to get epsilon hope, the goal of lottery providers is obviously to coax as much money out of the hopeful as possible. It's just like any other market in that regard.

Robin,

You ask, "would potatoes chips be a 'waste of taste', if some people eat too much of them? Is TV a "waste of time", if some people watch too much? Can we say that there is more of a tendency to buy too many lottery tickets than to do too much of any other thing one can do too much of?"

I think much of your question is better addressed to the Eliezer, who wrote the original entry with the "waste of hope" phrase. In any case, if someone buys so many lottery tickets that it interferes with other aspects of life (e.g., not being able to pay the rent or whatever), then, yeah, that seems like a problem. Maybe it's not a problem for such a person, but if it was someone I was close to, I'd be worried. Certainly there are people who have problems with food, drugs, maybe TV too, so I wouldn't single out gambling as being uniquely troublesome. I was just distinguishing your vision of the occasional lottery ticket (a small part of one's "portfolio of dreams") from something that's habitual, maybe harmful to one's other goals in life, and maybe not even so much fun.

EY : I have morals and purposes in my life that go beyond being someone's "customer", and so, I suspect, do you.

Yes, everybody has "morals and purpose" but why do you pretend that yours should be taken more seriously because you are supposed to be a "rationalist" ? Do you want to ban lotteries because they are a scam and you have some innate right and/or duty to "protect" the lottery players?

playing this game is rational if the thrill and the dream of beeing rich is valued more than 2$

Rukasu, I believe that having feelings about winning the lottery is an even bigger waste than the $2 because feelings are a scarce resource of the mind which can always be turned to a fruitful plan. In other words, since there are always many ways to get a thrill, always choose a way that can positively impact reality.

I have a personal story related to this - it's not quite the lottery but it's similar.

My sister-in-law and her husband won a million dollars on a TV game show back in the 1980s. (And then they promptly got divorced.) It turned out that the million is paid as $40,000 per year for 25 years. After the divorce she has received $20,000 per year. Ironically if she just lived off her winnings she would be barely above the poverty line, even though the show made a big deal about how she was now a "millionaire". Instead she and her (new) husband both work, and the extra $20,000 a year is a nice addition to their income. It runs out in a couple of years.

RH : always choose a way that can positively impact reality.

Can you really define what is "positive"? Also, given that no matter what is seen as positive or not entropy always increase the more you "impact" reality the more you consume a potential of some sort. Just to bring question : What is the best balance between personal satisfaction and negentropy expenditure?

Kevembunagga, I believe every person should do his best to discern what is positive. Yes, I tend to agree that the more you impact reality the more you increase entropy, but the potential entropy of the Universe is truly huge (mostly macrostates being a Universe with a few really massive black holes); it seems to me that time will run out before the ability to keep on increasing entropy will.

RH : I believe every person should do his best to discern what is positive.

Of course but the consensus is not obvious.

the potential entropy of the Universe is truly huge

We certainly are not going to exhaust the potential entropy of the whole universe (though some seem intent on that...) but we can locally exhaust all the potential within reach and by this very fact compromise our access to more "distant" potential.

Indeed, the consensus is not obvious. (Even if it were, it might be wrong: majorities are not always correct.)

Doug S: you could convince a doctor that you have a physical or mental illness that prevents you from working, and then apply for Supplemental Security Income. If your application is successful, you would recieve a very small but very reliable income (currently about $650 a month) plus health insurance (Medicaid). I assume you are American. I mention this because you seem very young and might not know this already. It is of course unethical to depend on the taxpayer for your living unless you really have no other choice.

Some data on gaming the system (gambling) i.e. not following a value investing model.

• $500B/yr wagered into national lotteries
• 10M compulsive gamblers in USA > # of alcoholics
• The USA was founded on monies attained from a state\national lottery: The revolution in the 1700's financed by similiar methods: Washington DC was financed by a lottery
• From 1790 to 1860 24 of 36 states sponsored government-run lotteries. 1894 it was banned. Reintroduced by State of New Hampshire in 1964, now there are 38 states with state-sponsored lotteries
• over 500 casinos across the USA
• Poll in 1971: 615 of Americans gamble, wagering $47.4B annually
• 1989 71% were wagering $246B
• 1992 $330B being wagered
• 1995, studies show 95% of Americans gamble: 82% play the lottery: 75% play slot machines: 50% bet on dogs & horses: 44% on cards: 34% on bingo: 26% on sports events: 74% frequent casinos: 89% approved of gambling.
• gambling expenditures exceed the amount spent on films, books, amusements, music, entertainment combined.
• 1993 people spent $400B legally, $482B in 1994 & over $500B in 1999
• 10% of all money earned by America is thrown away in gambling each year.

CONCLUSION: we are a nation of gamblers. can be speculated that based on the above trends the recent increase in market volume & market volatility is due to this gambling culture & mentality.

Having only just caught up with the Paris Hilton thread I've only just realised what Eliezar is trying to do and am suitably humbled. However, I choose the lottery thread to point up the unimaginable orders of magnitude of difference between the significance of trying to devise an optimal morality for the engineered intelligence which will supercede us (and yes, I do know that the etymology of supercede does include our death), and the significance me and my better half buying a lotto ticket. 'Wasted hope' implies that we are to some extent free agents. Before even going there, Eliezar, you need to define your position on free will vs determinism & Chalmers vs Dennett. No doubt you have, in which case please excuse me and point me there. To answer the lotto question, just look to how your post singularity AI will handle frustration, disappointment, and low self esteem. I don't have the math but I do have the questions. Our ability to handle our own dysfunctions is not even in its infancy. Our psychological models are a shambles (just look at the Tree of Knowledge as a smile- or tear- inducing example of how not to get there). Our therapeutic methodologies are at the shamanism 1.0.1 stage . And yet we hope to legislate for the intelligence that will replace us ? Call that a bias, a triumph of hope over experience ! Next step, the Paris Hilton discussion on values was suitably learned, but however high you get in meta- meta- meta- values theory, there is an irreducible 'my values are what seems right to me'. Your post-singularity IA will have its own, unless it is very severely constrained (but then I guess it wouldn't be post-singularity, in which case we should all go to the beach and shut up, because nothing we could do or say will make any difference). That's why I like Ian McDonald's book, it focusses on that polarity. BTW, I agree with the poster who postulated creepiness as a value. Cryogenics is definitely creepy. Also, please get in touch when you've produced an AI program to match the smile on my wife's face when she comes in with a Lotto ticket and says 'this is for you', and the effect it has on me even though I know all the probability statistics. Tara.

Re: Seriously, why can't we just say that buying lottery tickets is stupid?

Buying a lottery ticket is not stupid - under some conditions.

Say you have two cents, and can't afford your train fare home (which is one stop away). If you can gamble those two cents in a game of chance, you may be able to convert them into a whole train fare.

The conditions of being stuffed - unless you have a lot of money - may not be that uncommon: so many people may be inclined to gamble this way.

I don't want to conclude that lottery might be rational, but I don't think it is self-evident that the right way for deciding between different probability distributions of utility is to compare the expectation value. We are not living a large number of times, we are living once (and, even if we did, bare summated value would neglect justice).

Isn't the obvious conclusion that it would be best for the world if lotteries were banned in as many countries as possible?

you're occupying your valuable brain with a fantasy whose real probability is nearly zero - a tiny line of likelihood which you, yourself, can do nothing to realize.

I have fantasies where I have superpowers and join the X-Men. I fuel these fantasies by reading comic books -- they cost a lot more than a dollar and it takes me much less than a day to read each one, so in this way, fueling my superhero fantasy is even stupider than fueling a millionaire fantasy by buying the occasional lottery ticket. And the likelihood of the superhero fantasy coming true doesn't just approach zero, it actually is zero. Does that make reading comic books a form of self-destruction? If not, how is it different from buying a lottery ticket every so often? What about sexual fantasies about getting with Jamie Bamber or Felicia Day--are these stupid and self-destructive too, or are they just harmless and pleasant indulgences?

The idea you lay out here--that the lottery-ticket fantasy would necessarily crowd out other, more realistic ideas for wealth generation--seems contrary to the way brains actually work. If the lottery-ticket fantasy fires often, wouldn't that strengthen rather than inhibit the areas where related information is stored? (i.e. the daydreams of "going to technical school, or opening their own business, or getting a promotion at work.") Don't related cognitive activities reinforce each other rather than crowd each other out? I'm not talking about addiction--I'll freely admit that's self-destructive--just about the value of engaging in fantasies "whose real probability is nearly zero," or even fantasies where the real probability actually is zero.

I think impossible fantasies are valuable, partially just because they are fun and I value fun, but partially also because I think they can still inspire us even when the correlation to reality is not direct. I think my superhero fantasies have inspired me to think more deeply about morality and about my place in the world. I buy lotto tickets every so often, and I have also read about investment strategies and I make sure my 401k is fully funded. I put MUCH, MUCH more money into index funds than I spend on the lottery, but buying the lottery ticket every so often helps tickle that "wouldn't it be nice to be rich" reward center in my brain, and THAT helps to keep me on track in my savings and investments. These things can be indirect.

Huh... the thought occurred to me recently.

Just like in the torture versus dust specks post earlier, people might prefer that one person benefits extremely instead of all of them benefiting a small amount. While they might not be the ones to win the lottery, someone else will, and by joining in, they're helping to keep the lottery alive a bit longer.

I admit that I'm relatively new to these concepts so I apologize in advance if my post is a bit scatterbrained or in the wrong post, but it's just a thought.

Just like how people would prefer for 3^^^^3 people to get dust specks in their eyes instead of one person being tortured for 50 years, perhaps they prefer that one person is a millionaire instead of all of them being $1 richer.

Aren't video games an even bigger waste of hope?

I'm still not convinced that I shouldn't buy lottery tickets.

Assume a hypothetical situation. There's a lottery right next to where I study/work. Also, I realize how silly it is to actually expect to win the lottery after buying a lottery ticket, so I can't use this as a source of positive emotions, even if I want to. However, buying lottery tickets let me engage in certain social situations, which just barely outweigh the time wasted for them (but not the money) - alternatively, you can instead assume that it takes me 0 seconds to buy a ticket and later to check if I won.

I reckon this question has already been answered, therefore links are a completely acceptable response.

Also, I'd never buy a lottery ticket. It's because of expected value. However, I'm still trying to solidly prove that decision-wise, expected value is equivalent to predicted reality (of course, after uncertainty is taken into account).

Unsurprisingly, many people don't realize that a numerical calculation of expected utility ought to override or replace their imprecise financial instincts, and instead treat the calculation as merely one argument to be balanced against their pleasant anticipations—

The process of overcoming bias requires (1) first noticing the bias, (2) analyzing the bias in detail, (3) deciding that the bias is bad, (4) figuring out a workaround, and then (5) implementing it.

EY is just wrong in one respect. People enjoy pleasant anticipations. It's perfectly instrumentally rational to weigh that value against the expected financial loss of the lottery ticket. In fact, one could say that the purchase of a lottery ticket is using an epistemically limiting cognitive bias for instrumental gain - the fact that my mind really doesn't feel 1 in 100 million differently than 1 in 10 million or maybe 1 in 10000 allows the anticipated gain to far outstrip the epistemically actual gain, making the bet worthwhile.

Where I do agree with him is the waste of misplaced hope. That hope for the lottery win, and the attending riches leads to actions which provide no incremental real gains. Probably better, if you're going to indulge in epistemically unfounded hopes, to attach them to actions that actually do have some benefit in themselves. Picture yourself wildly overachieving on some goal that you're actually working toward, or would like to work toward. Pick empowering delusions. Whether such delusions are in fact empowering is an empirical question, but I definitely don't see the lottery win delusion as empowering.

For powerball to have an Expected Value of 1, the individual take-home jackpot would have to be about $313,124,412 for the lump sum, after taxes. (Which, assuming average state income tax rates, corresponds to an advertised jackpot of roughly $805,000,000 AND assumes the jackpot doesn't have multiple winners, which at that level is pretty unlikely.) Of course, since it's a risky bet, you don't want to blow your whole bankroll on lottery tickets even if the EV is above 1. That's where the Kelly Criterion comes in. According to the easy version of the Kelly Criterion (the hard version gets messy) the calculation is that in order to justify even one $2 ticket, you have to have around $621-Million in the bank. But that assumes you can play the game enough times (multiple rounds) with the same payoff/probability each round to have a good chance of reaching your EV (which would mean that the powerball would have quite the endowment saved up, but whatever). Since powerball jackpot odds are 1/175,223,510, even waiting 175,223,510 /2 weeks (since powerball is drawn twice a week) is 1,684,842 years. And if I did my probability right, if you want to be 99% certain of getting the jackpot, you have to play for 7,758,977 years.

Although, I guess if you're going to live that long, you probably don't need to save your $621-Million ahead of time. Just budget as you go.

You describe the millionaire daydream as a sink. That could be reframed as an opportunity cost. The same as any short-term v. long-term gratification, the time spent daydreaming may create an opportunity cost wherein the preoccupied brain isn't investing in some other opportunity that could lead to higher returns in the future, such as your technical school example. This simply restates that the costs of the lottery ticket are the lost marginal utility of the dollar which could have been spent on, or invested in something else, plus the opportunity cost of the lost time spent daydreaming that could have been spent on something else. The benefits are the marginal utility derived from the time spend daydreaming.

In that regard, it still seems that the purchase may be good for some, if they can afford the dollar, they enjoy the daydreaming, and the determine that the opportunity cost is low. It all seems to hinge on the individuals utility functions for the dollar, the daydream, that the expected future value of the rewards associated with the alternative time lost to daydreaming.

Various industry and government estimates tell us that Americans watch an unbelievable 8 hours of TV every day. Even if this a gross overestimate, what is the cost of a few days of lottery fantasy compared to that?

Someone once told me that the odds of winning the lottery are smaller than the odds of dying before the draw. Thanks to this insight, lottery tickets have become a kind of "memento mori" for me, and I'm no longer tempted to buy any.