A Lottery for Smart People

Most lotteries are a sucker’s game. But a group of credit unions in Michigan has come up with a lottery that everyone wins. The idea is that each time a customer makes a savings deposit of $25 or more, he or she is entered into a raffle to win $400, plus a chance to win the $100,000 annual jackpot. Even if you lose, you’ve still increased your personal savings. The Wall Street Journal reports that the savings lottery has brought in some $3.1 million in new deposits so far. [%comments]


don't forget the opportunity cost of saving

Bram Fokke

Why don't they just pay out more interest? I don't see why this lottery would be for smart people - they won't lose as much as they would if they entered all their money in the lottery. But I'll bet (pun intended) that on overage the credit unions pay out less in interests + jackpot money than credit unions who don't participate in the scheme.


How much money have they lost in receipt paper due to people who now deposit $25 a day instead of all at once? How do they know the 3.1 million new deposits wouldn't have been deposited without the marketing campaign?


It seems entirely possible that this lottery is also a sucker's game. How are the credit unions paying for the jackpot? By cutting customer service? By offering slightly lower interest rates? By taking higher risks that make it slightly more likely that they'll go out of business?


Truly "smart people" would go for the investments that naturally have a higher interest rate because they don't offer a prize. A lotto savings plan like this is essentially tricking people "who are bad at math" into saving. Better than no savings, but still suboptimal.

Allen Reynolds

How is accepting a below-market rate of return smart?
There is no free lunch. The raffle is just a sales incentive. Would you rather have 4.25% ROR and a toaster, or 4.5% without a toaster?


If I were to deposit a $1,000, I would do so by making 40 $25 deposits. And then the next day withdrawing the money and redepositing it the next day.


Is this not a similar concept to UK Premium Bonds?

Premium bonds were launched by the UK government in the 1950's to encourage savings amongst those who liked a flutter rather than a guaranteed interest income. An investment buys a ticket in a monthly lottery. There were ?25billion invested in premium bonds by 2004...

The only differences with this Michigan concept seem to be the one off nature of the lottery and "some" interest protection against inflation for the sum invested.


In the UK these are known as Premium Bonds. 100 GBP buys 10 premium bonds. A random number generator chooses a number of winners each month and there is large prize of a million pounds.
The probability of winning this makes the National Lottery seem like a good bet. However, there are also a number of much smaller payouts. The probability is such that the payout is on average less than the interest in a savings account. Although with interest being at an all time low, it could be a reasonable investment at the moment.


Treating the merits as scalar values would indeed frame this as a 4.25% + Toaster vs. 4.5% problem. However, approaching it as a vector-based solution shows that they simultaneously increase deposits while giving everyone an option to win. Considering how indebted US citizens are, this may result in a Pareto improvement, creating wealth instead of destroying or redistributing it.


And here we were taught to believe that the stock market is the "Lottery for Smart People"...

Gale Thorne

This isn't a lottery for smart people, it's the smart lottery for dumb people.

Clearly it would be more prudent to invest your money at an assumed higher rate without the lotto element. However, for people who need/seek the thrill of possibly winning something, it's far better to sacrifice a portion of the return to keep their principal. Also, the thrill may actually encourage additional savings. So again, a smart lottery for the less prudent among us.


sounds like a ponzi scheme

Matt Todd

I checked out the flash program that you linked to and it's wrong. It appears to underestimate the number of wins by only counting a match when that number appears in the column. This is not how a lotto number is actually chosen. You can see correct picks passing by uncounted in the program. That being said, you're still foolish to play the lotto. My example: would you spend a dollar to be blind-folded and try to pick the one red ping pong ball from the floor of a square room covered with ping pong balls that is 1840 feet on each side (about 3385000 sq ft with 1.58 inch wide balls lined up in rows, not staggered). I often see people spend much more than a $1 to play. Would you spend $10 to play if the room were a tenth the size? Would you spend $100 to pick one ball if they covered 7 basketball courts? I've heard Garrison Keillor say the lottery is a tax on people that didn't do well in math. That sounds about right.


Christopher Butler

Ah ceteris paribus, the problem with economic modeling is exemplified by all the comments here. All you neigh sayers assumes that the bank can't leverage the incoming funds and yield a better return then they would have before. I'm not saying they did, just that its a possibility and so many of you should be so quick to dismiss.


similar to this but with higher winnings (main was 2 mln zlotys ie. $600,000) - Bank Zachodni (in Poland) http://manager.money.pl/strategie/case_study/artykul/de;vito;zgarnal;dla;bz;wbk;4;3;mld;zlotych,24,0,495128.html (in polish so try translator), sum of gathered deposits = 4,3 billions zlotys


For people who read the Freakonomics blog, this is probably not a good investment ... so don't do it.

But if I'm Joe Schmo with $100 (and only $100) to spare, I'm confronted with a few choices, among them: 1) Put it in a regular savings account earning (these days) about $1 per year; 2) Put it in this prize account and earn maybe $0.50 per year PLUS four chances to win more money; or 3) Buy some number of lottery tickets.

One is the wholly rational choice of the three, but $1 per year is not much, even for a poor person. Three is the exciting thing to do, even if you're overestimating your chances to win, but you're likely to lose it all. Two gives some of the excitement of three without the loss of the principal. You still get to play the lottery for about $0.50-worth of opportunity cost.

Better yet, for both his and society's sake, Joe has a rainy day fund for the first time in his life.

(Full disclosure: I'm involved with, and rather like, the program.)


David Chowes, New York City

[I am against government lotteries -- they are, in the main, for poor suckers. In NYS, they pay about 50 cents for each dollar spent. Organized crime returns more -- seriously.]

This new lottery concept you mentioned is better than the typical one. But, if a persons knows the odds -- probability -- and the expected return then...

Take the money you would spend on any lottery, accumulate it and for every say, $500, buy a CD.

The NYS lottery runs many ads which say things like, "You've got to be in it to win." In truth, over the long haul,
the more you buy tickets you buy, the more money you'll lose.

Due to its B. F. Skinner's Operant Conditioning -- gambling is' run on an intermittent reinforcement schedule... Very powerful -- so powerful, it can easily lead to a gambling addiction -- and on to the casinos... Before paying the morgage and buying food for the week.

Potential serious danger courtesy of of your government.

Stay away!



If raffles are supposed to be all about entertainment, I like the comments of Corban, who's trying to use some new vocabulary, and Craig & cs, who don't even know what they're talking about. Wow; I think those comments gave me the desired entertainment for the time spent on this page.


I think this would be definitely a trick to outsmart the smart people.