Yet Another Reason to Not Play the Lottery

At least in Canada, that is. According to this CBC News report, clerks who sell lottery tickets are either really, really, really lucky or they steal winning tickets from their elderly customers. Who had the very clever thought of measuring the winning rate of lottery clerks? That would be Jeffrey Rosenthal, a statistician at the University of Toronto. I’ve read about Rosenthal a few times now, and am always impressed and intrigued by what he’s working on. This lottery story bears some obvious relation to the real-estate story we tell in Freakonomics. Maybe Rosenthal will turn out to be the Levitt of Canada.

(Thanks to Jeff Lewis for the tip.)


douglaskarr

I am convinced that Lotteries are simply taxes collected from poor people. It's unfortunate that people don't recognize this. It's also interesting that gambling is treated with some contempt by government, unless of course they are running it!

pkimelma

Yes, but the normal model of government is to favor otherwise illegal or immoral activities when they bring in enough revenue for the local government. How you make the tax palatable to those willing to pay it is secondary after all.

So, internet gambling is bad because the revenue is not going to the local government. Lotteries and the like are "OK" because they do. Similarly with drugs. Alcohol brings in lots of local revenue, so is OK. Other drugs are not taxed and so are not OK (besides possible other issues). Likewise, prescription drugs and cigs imported by users are bad (no taxes), locally sold ones are good (lots of taxes). The fact that many "sin taxes" are more heavily paid by the poor is also the nature of most consumption taxes. You cannot scale up consumption, so the rich do not pay more (or much more).

boonerator

Rosenthal reminds me very much of "Freakonomics".

His book "Struck by lightning" is all about probabilities and is written at a very understandable level.
I finally understood why if there are only 23 people in a room, the odds are 50% that two have the same birthday. If 50 people, the odds are close to 95% or so.
Very much worth getting from your local library.

George S

I have heard lotteries described as taxes on the poor, as noted above, and also as a 'tax on stupidity'. Both descriptions contain some truth.

But what are the attractions of playing the lottery vs other forms of gambling, especially for those who are poor, or not highly educated, or otherwise underprivileged?

Well, it's convenient, unlike say, playing the slot machines. In that case you usually have to go to a casino. You can purchases a lottery ticket virtually anywhere that you purchase other everyday items.

Secondly, it's pure luck. That means that in an honestly-run lottery, every ticket has an equal chance. That is not the case in other forms of gambling, where smarter, more experienced, or more knowlegdable players win more often (horse racing, poker, football pools, stock market, etc.).

Next, and related to that, playing the lottery does not require expertise or critical thinking. This makes a lottery an attractive gambling option for those who do not want to spend any time studying or researching. I don't know of any other form of gambling where players frequently let others make their choices or pick their numbers (random tickets from a machine). Your choices do not affect the outcome or your chances of winning.

Also, unlike most casino gambling, with the lottery there is no real chance that you can 'let your winnings ride', other than for small amounts. Few people who win say $1,000 will turn right around and buy $1,000 worth of lottery tickets (partly because large payments take some time to collect). But someone who wins $1,000 at roulette or blackjack might very well decide to play the hot streak and go home with nothing. I would guess that lottery winnings have a better chance of being spent on non-gambling activities than would winnings from other forms of gambling.

Lastly, although the odds against winning the big jackpot are astronomical, there is still a chance. That hope remains alive every day for those who play. I suspect that even such a slim hope is very important to those with otherwise limited opportunities to improve their life. I suspect that that hope has more value to them than any extra money they might get from saving or investing the money they spend on lottery tickets.

Read more...

Don Robertson

George S. says, "I have heard lotteries described as taxes on the poor, as noted above, and also as a ‘tax on stupidity'. Both descriptions contain some truth."

What? Like leg-hold traps are taxes on people who walk in the woods?

Anyway, that probably was not an adequate analogy. Leg-hold traps are illegal, now. Have been since -03 when some Senator got his drunken leg all whacked up in one and died.

My local convenience store "Beer/Cigs/Week-Old Pizza & Scratch-tickets "R" Us" sells pre-scratched Quick-Hit! tickets for half price, and it's done wonders for keeping the poor critters that buy them in beer money.

It works like this: The Old Man, "Pops", sends "da wife" down for his beer and scratch tickets. She buys the pre-scratched tickets, and pockets the difference. "It' like a pay raise!" she tells the convenience story clerk, Bob Do-dah-dah-bing. And then upon returning home with the beer she says, "Well Pops, I scrathed all your tickets for you, and they was all freakin' losers." To which Pops replies, "As usual! Gimmie a beer Honey Bun."

That's passes for keeping the family budget under control. We'll get that kid of their's into a Junior College yet!

With any luck, he could make economist grade!

Don Robertson, The American Philosopher
Limestone, Maine

An Illustrated Philosophy Primer for Young Readers
Precious Life - Empirical Knowledge
The Grand Unifying Theory & The Theory of Time
http://www.geocities.com/donaldwrobertson/index.html
Art Auctions:
http://www.artbyus.com/auctions.php?a=6&b=4807

Read more...

110phil

Actually, I don't think it was Rosenthal who had the idea ... he was just consulted for the probability estimate.

That's the way I read the story, anyway.

3612

Seems like employees of stores that sell lottery tickets ought to be ineligible for playing the lottery. That's how it's set up with all other commercial sweepstakes (employees of the company and their families barred from entering, to ward off the risk or even appearance of collusion.)

zbicyclist

Robertson (#5) are you serious? A convenience store that sells pre-scratched, losing lottery tickets?

So, there really IS a market for anything, given the right price.

110phil

I don't think he's serious. Prescratched losing tickets would sell for much less than half price.

aardhart

110phil:

I believe you omitted a key assumption. IN AN EFFICIENT RATIONAL MARKET, "prescratched losing tickets would sell for much less than half price." Of course, under that assumption, the lottery probably wouldn't exist at all.

zbicyclist

I've socialized Robertson''s (#5) story, and those I've asked about it don't seem to believe it. But then (1) we don't live in Robertson's neighborhood, and (2) it doesn't seem any more unlikely than this story:

"One former IRS Revenue Officer, who quit government to open his own
small tax preparation firm, thought he found the answer. One of his
clients won a share in a state lottery: $2.7 million, paid out over 20
years in installments of about $135,000, before taxes. The winnings
were reported, but the tax return claimed gambling losses of $65,000.
The IRS decided that $65,000 was a lot to lose, and it sent an agent to
conduct an audit.

The tax preparer found a man with an extremely large collection of
losing lottery tickets and made a deal: he would borrow 200,000 losing
tickets for a month for $500. The losing tickets were bound in stacks
of 100 and shown to the IRS auditor: 45,000 instant scratch tickets,
5,000 other Massachusetts lottery tickets, and 16,000 losing tickets
from racetracks throughout New England. So many losing tickets, that it
would have been physically impossible for one man to have made these
bets. The New York Times called it, "one of the more visibly inept
efforts at tax fraud." They pleaded guilty eight days after being
indicted."

http://cc.msnscache.com/cache.aspx?q=4161060946163&lang=en-US&mkt=en-US&FORM=CVRE

Read more...

jw

I used to work for a systems firm that provided software to validate lottery tickets. Worked on two state lotteries.

3 funny stories:

1) Somehow, someone programmed the barcode validation to respond with "Winning ticket", "Non-Winning ticket", or "Invalid Prize Amount" based upon the barcode scan and prize amount entered.

Well, some clerks figured it out and would scan unsold tickets until the barcode came back with "invalid prize amount", meaning that ticket was a winner. Not too bright on the software part.

2) Some guy came in to the lottery office and came in with a ticket. He cut out a matching number from another ticket and glued it over the non-matching number to give the appearance of a winning ticket. Umm, the tickets are barcoded? He was easily caught and arrested.

3) In one state, we integrated the lottery system with the state debtors file (e.g. deadbeat dads that have outstanding child support claims). One guy came in with a $10,000 winning ticket and was not too happy when he found the prize money would not go to him but to settle his debts first.

Read more...

douglaskarr

I am convinced that Lotteries are simply taxes collected from poor people. It's unfortunate that people don't recognize this. It's also interesting that gambling is treated with some contempt by government, unless of course they are running it!

pkimelma

Yes, but the normal model of government is to favor otherwise illegal or immoral activities when they bring in enough revenue for the local government. How you make the tax palatable to those willing to pay it is secondary after all.

So, internet gambling is bad because the revenue is not going to the local government. Lotteries and the like are "OK" because they do. Similarly with drugs. Alcohol brings in lots of local revenue, so is OK. Other drugs are not taxed and so are not OK (besides possible other issues). Likewise, prescription drugs and cigs imported by users are bad (no taxes), locally sold ones are good (lots of taxes). The fact that many "sin taxes" are more heavily paid by the poor is also the nature of most consumption taxes. You cannot scale up consumption, so the rich do not pay more (or much more).

boonerator

Rosenthal reminds me very much of "Freakonomics".

His book "Struck by lightning" is all about probabilities and is written at a very understandable level.
I finally understood why if there are only 23 people in a room, the odds are 50% that two have the same birthday. If 50 people, the odds are close to 95% or so.
Very much worth getting from your local library.

George S

I have heard lotteries described as taxes on the poor, as noted above, and also as a 'tax on stupidity'. Both descriptions contain some truth.

But what are the attractions of playing the lottery vs other forms of gambling, especially for those who are poor, or not highly educated, or otherwise underprivileged?

Well, it's convenient, unlike say, playing the slot machines. In that case you usually have to go to a casino. You can purchases a lottery ticket virtually anywhere that you purchase other everyday items.

Secondly, it's pure luck. That means that in an honestly-run lottery, every ticket has an equal chance. That is not the case in other forms of gambling, where smarter, more experienced, or more knowlegdable players win more often (horse racing, poker, football pools, stock market, etc.).

Next, and related to that, playing the lottery does not require expertise or critical thinking. This makes a lottery an attractive gambling option for those who do not want to spend any time studying or researching. I don't know of any other form of gambling where players frequently let others make their choices or pick their numbers (random tickets from a machine). Your choices do not affect the outcome or your chances of winning.

Also, unlike most casino gambling, with the lottery there is no real chance that you can 'let your winnings ride', other than for small amounts. Few people who win say $1,000 will turn right around and buy $1,000 worth of lottery tickets (partly because large payments take some time to collect). But someone who wins $1,000 at roulette or blackjack might very well decide to play the hot streak and go home with nothing. I would guess that lottery winnings have a better chance of being spent on non-gambling activities than would winnings from other forms of gambling.

Lastly, although the odds against winning the big jackpot are astronomical, there is still a chance. That hope remains alive every day for those who play. I suspect that even such a slim hope is very important to those with otherwise limited opportunities to improve their life. I suspect that that hope has more value to them than any extra money they might get from saving or investing the money they spend on lottery tickets.

Read more...

Don Robertson

George S. says, "I have heard lotteries described as taxes on the poor, as noted above, and also as a 'tax on stupidity'. Both descriptions contain some truth."

What? Like leg-hold traps are taxes on people who walk in the woods?

Anyway, that probably was not an adequate analogy. Leg-hold traps are illegal, now. Have been since -03 when some Senator got his drunken leg all whacked up in one and died.

My local convenience store "Beer/Cigs/Week-Old Pizza & Scratch-tickets "R" Us" sells pre-scratched Quick-Hit! tickets for half price, and it's done wonders for keeping the poor critters that buy them in beer money.

It works like this: The Old Man, "Pops", sends "da wife" down for his beer and scratch tickets. She buys the pre-scratched tickets, and pockets the difference. "It' like a pay raise!" she tells the convenience story clerk, Bob Do-dah-dah-bing. And then upon returning home with the beer she says, "Well Pops, I scrathed all your tickets for you, and they was all freakin' losers." To which Pops replies, "As usual! Gimmie a beer Honey Bun."

That's passes for keeping the family budget under control. We'll get that kid of their's into a Junior College yet!

With any luck, he could make economist grade!

Don Robertson, The American Philosopher
Limestone, Maine

An Illustrated Philosophy Primer for Young Readers
Precious Life - Empirical Knowledge
The Grand Unifying Theory & The Theory of Time
http://www.geocities.com/donaldwrobertson/index.html
Art Auctions:
http://www.artbyus.com/auctions.php?a=6&b=4807

Read more...

110phil

Actually, I don't think it was Rosenthal who had the idea ... he was just consulted for the probability estimate.

That's the way I read the story, anyway.

3612

Seems like employees of stores that sell lottery tickets ought to be ineligible for playing the lottery. That's how it's set up with all other commercial sweepstakes (employees of the company and their families barred from entering, to ward off the risk or even appearance of collusion.)

zbicyclist

Robertson (#5) are you serious? A convenience store that sells pre-scratched, losing lottery tickets?

So, there really IS a market for anything, given the right price.