When gasoline prices shot up this year, Peggy Seemann thought about saving the $10 she spends weekly on lottery tickets. But the prospect that the $10 could become $100 million or more was too appealing. So rather than stop buying Mega Millions tickets, Ms. Seemann, 50, who lives in suburban Chicago and works in advertising sales for a financial Web site, saved money instead by packing her lunch a few days a week, keeping alive her dreams of hitting a jackpot and retiring as a multimillionaire.
“With companies tightening and not giving cost-of-living increases, you have to try to make money elsewhere,” she said, though conceding, “It might be convoluted logic.”
From Sweet Dreams in Hard Times Add to Lottery Sales. Sigh…
Why don’t people cut back on lottery tickets? Proposition #1: People see the lottery as a means to equaling or surpassing the incomes of those around them. Read recent behavioral economics paper “Subjective Relative Income and Lottery Ticket Purchases” (here) for more on lottery ticket purchases, especially by the poor.
Low-income individuals may be particularly drawn to purchasing lottery tickets because lotteries afford them an equal opportunity of winning. They are likely to perceive the lottery as a rare opportunity to compete on equal footing with people who are more affluent.
Proposition #2: Lottery ticket sales don’t account for a large part of household budgets. A few bucks a week on Powerball tickets seems inconsequential. But people cut back on specialty coffee. Why not lotto tix? Specialty coffee and lottery tickets should be treated as goods consumed primarily by different social classes. So we’re back to Proposition #1. Continued lottery ticket purchases by people, especially low-income people, are not due to ignorance or cognitive errors. They are most likely due to factors underlying their economic status.
People with low incomes play the lottery, which amounts to effectively burning $.47 on every dollar spent, in part because the cognitions associated with poverty increase the appeal of playing. This creates a vicious cycle. The subjective feeling of poverty leads people to take actions that effectively exacerbate the financial condition which led to the actions in the first place. The cost is not insubstantial.
There have been policy proposals for encouraging savings by linking lottery tickets to bank accounts. Under these lottery-linked savings accounts, which are found most prevalently in Latin America, monthly drawings for cash and prizes are held for account-holding customers, who also get one lottery ticket for every $X they currently have on deposit.