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.

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 a... (read more)

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?

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 w... (read more)

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. Y... (read more)

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 you... (read more)

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 b... (read more)

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.

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

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.

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 area... (read more)

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 Kel... (read more)

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... (read more)