Why do poorer people play the lottery?
February 8, 2010Jon Brooks Comments OffSpeaking of gambling…from a paper titled “Loving a bad bet: Factors that induce low-income individuals to purchase state lottery tickets,” presented at the 2008 American Economic Association annual meeting.
According to the paper, despite state lotterys having the worst odds of any form of legalized gambling, “low income individuals spend a higher percentage of their income on lottery tickets than do wealthier individuals.” One reason, unearthed during an experiment: The lottery guarantees low-income individuals fair odds relative to other income groups.
Abstract
Playing the state lottery is clearly inconsistent with expected value maximization; lotteries only return approximately 50 cents on the dollar, on average. Moreover, low-income individuals spend a higher percentage of their income, and possibly even a higher absolute amount, on lottery tickets than do wealthier individuals. However, little research has explored what factors encourage or discourage lottery ticket purchases. In a series of controlled experiments, we examine the influence of different factors on the attractiveness of playing the lottery.
Experiment 1 examines the hypothesis that people buy tickets, in part, because they view the decision to purchase a ticket myopically, meaning that they make one decision at a time, rather than broadly bracketing the decision – i.e., considering the aggregate consequences of purchasing multiple tickets.
Experiments 2 & 3 address the question of what makes state lotteries so appealing to low-income populations. In Experiment 2 we find that people are more likely to purchase tickets when they are implicitly primed to perceive that their own income is low relative to some standard, suggesting that the lottery is viewed as a means to correct low standing on the income hierarchy. In Study 3 we find that people are more likely to purchase tickets when they are subtly reminded that all income groups have an equal chance of winning. This suggests that part of the lottery’s allure for low-income individuals is that it guarantees them fair odds relative to other income groups. We discuss the policy implications of these results for deterring low-income individuals from playing the lottery and the use of lotteries to promote positive behaviors, such as saving.
Introduction
State lotteries are a multibillion dollar industry. In 2005, total sales from state lotteries surpassed $50 billion (Hanson, 2007). Playing the lottery is inconsistent with expected value maximization (or with expected utility maximization assuming diminishing marginal utility).
Yet, despite their highly negative expected value, clearly many people find lottery tickets appealing. Research on state lottery players finds that lotteries are most appealing to the poor. Low income individuals spend a higher percentage of their income on lottery tickets than do wealthier individuals (Brinner & Clotfelter, 1975; Clotfelter & Cook, 1987, 1989; Livernois, 1987; Spiro, 1974; Suits, 1977), a pattern highlighted by the statistic that households with an income of less than $10,000 spend, on average, approximately 3% of their income on the lottery (Clotfelter et al., 1999). Some studies even find higher absolute demand for lottery tickets among low-income populations (Clotfelter et al., 1999; Hansen, Miyazaki & Sprott, 2000; Hansen, 1995).
The connection between lottery play and income is unfortunate because the purchase of lottery tickets by the poor can be considered a type of “poverty trap” – a cycle of inefficient behavior that prevents low-income individuals from improving their financial situations. State lotteries have the lowest payout rate of any form of legal gambling (Clotfelter & Cook, 1989) and provide a much lower rate of return than the assets that more affluent families tend to invest in.
Over the years 1964-2003, the average expected value was -$.47 for each dollar spent (LaFleur & LaFleur, 2003).1 Moreover, poverty creates “smaller margins of error,” so that behaviors that have negligible effects on the financial well-being of a middle class person, such as playing the lottery, can have a profound impact on that of a poor person (Bertrand, et al., 2004).
This paper presents a series of experiments intended to illuminate psychological factors that encourage people to purchase state lottery tickets. Experiment 1 demonstrates how a common decision bias – myopia – can lead to increased lottery ticket purchases. Experiments 2 & 3 address the question of why the dream of winning the lottery seems to be particularly attractive to people with low-incomes. These experiments examine the effect of implicit comparisons with other income classes on the propensity to purchase lottery tickets. We discuss the implications of our results for deterring low-income populations from playing state lotteries and the use of lotteries to encourage positive behavior in low-income populations, such as saving.
All three experiments were conducted in a low-income sample because we wanted to
understand what drives the purchase behavior of the poor, who are disproportionately affected economically by playing the lottery. We conducted framed field experiments as defined by the criteria and terminology of Harrison & List (2004). The experiments were conducted with a subject pool chosen to represent the target population (low-income participants), using a commodity that is not artificial (actual state lottery tickets), and in a domain of behavior in which most of the subjects had prior experience and/or prior information.
You can read the full paper here.
