Sunday, January 10, 2016

Thoughts on Powerball

Sunday's failure to produce a powerball lottery winner will bring Wednesday's prize to around $1.3B, by far the largest ever. Per Alex Tabarroks' back-of-the-envelope calculations, purchasing a ticket is still probably not worth it in strict expected-value terms.

Psychologically, however, it's clear that many people--mostly poor and lower-middle class--see benefits from the lottery in the form of entertainment or hope, which they are willing to spend scarce dollars to obtain. 

I generally have a negative attitude about gambling and the lottery, but lately I've come to distinguish between the personal decisions of poor people to spend their money how they wish, and the government's role in gambling/lotteries. 

An anecdote: a few years ago I worked as a baggage handler at LaGuardia airport, which is a relatively low-skill, low-wage segment of the service industry (not the lowest). Though somewhat diverse from an economic-status perspective (legacy of unionization), a large chunk of employees were basically living paycheck-to-paycheck with little savings. My first day on the job, I was offered membership into a club of employees that pooled weekly payments to purchase lottery tickets, sharing any potential winnings. These same employees utilized their airline flight benefits to frequently vacation in cheap cheap countries, often in the Caribbean. When asked to participate in the lottery club, I declined, noting that if everyone stopped buying tickets and instead used the equivalent amount of money to purchase a beach house in the Dominican Republic, they could reap more tangible (and immediate) rewards.

When thinking about the economic decisionmaking of poor or desperate people, I suffer from a severe dissonance. On the one hand, there's a huge amount of evidence demonstrating that poor or otherwise disadvantaged people make terrible decisions when it comes to finances and long-term wealth calculations. Yet on the other hand, the paternalistic policy implications that often spring from these findings are uncomfortable to me. There's an increasing appreciation in economics for the often surprising wisdom of poor people's decisionmaking, and in this vein spending money on lottery tickets might simply be the best option, for whatever reason. 

Reconciling these two strands of thought is really tough, and I don't have a strong opinion about whether government should restrict these "swing for the fences" types of expenditures. In general I think there are not enough opportunities for poor or stagnant people to engage in risky and glorious quests of escape and adventure, but I'm not sure the lotto fully qualifies.

As a matter of public finance, I do think it's strange that government has a direct role in these games of chance. Allowing private firms to provide gambling services is one thing, but actively participating in the market lends an implicit sheen of moral approval that probably isn't the best.

1 comment :

  1. Completely agree with you. The government watchdogs' role in lottery is indeed suspicious putting it mildly. Another thing surprising me even more is their attitude. Illinois lottery continuing sell tickets being on the verge of bankruptcy is the most vivid example leaving alone the online lottery business. I'm sure not all of them are scams, there are the credible one like Icelotto review, but on the whole there is something fishy about it.