Why Do People Play the Lottery

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Why Do People Play The Lottery? Make Up Your Mind! Why Do People Play The Lottery? Make Up Your Mind! transcript of a talk by Professor Michael Mainelli, Executive Chairman, Z/Yen Group at Gresham College, Barnard’s Inn Hall, Holborn, London EC1N 2HH on Monday, 25 September, 2006 at 18:00 recording available at http://www.gresham.ac.uk/event.asp?PageId=4&EventId=512 Good evening Ladies and Gentlemen. I’m delighted to see so many of you choose to take a chance on this evening’s lecture. Tonight
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  Why Do People Play The Lottery?Make Up Your Mind!Why Do People Play The Lottery?Make Up Your Mind! transcript of a talk by Professor Michael Mainelli, Executive Chairman, Z/Yen Group at Gresham College, Barnard’s Inn Hall, Holborn, London EC1N 2HH on Monday, 25 September, 2006 at 18:00 recording available athttp://www.gresham.ac.uk/event.asp?PageId=4&EventId=512 Good evening Ladies and Gentlemen. I’m delighted to see so many of you choose to take achance on this evening’s lecture. Tonight we’re going to explore rationally how we makeirrational choices. We’re also going to explore how you might make some money out of irrationality. Tax on Stupidity? It has often been said that any lottery is a mug’s game. Clearly, lottery players areguaranteed, overall and over time, to lose. A more pointed comment on lotteries is that“they are a tax on stupidity”. You must be stupid to play, and smart people never © Z/Yen Group Limited, 2006 Risk/Reward Managers5-7 St Helen’s Place 1/25 tel: +44 (020) 7562-9562London EC3A 6AU fax: +44 (020) 7628-5751United Kingdom www.zyen.com  Why Do People Play The Lottery?Make Up Your Mind! participate. Henry Fielding supplied a song for his farce, The Lottery, which was firstperformed on New Year’s Day January 1732 at the Drury Lane Theatre, London. Nearlythree centuries on, the lyrics ring true:“A lottery is a taxation,Upon all the fools of Creation;And Heav’n be prais’d,It is easily rais’d,Credulity’s always in fashion;For, folly’s a fund,Will never lose ground,While fools are so rife in the Nation.”In the last century, Albert Einstein remarked, “Only two things are certain: the universe andhuman stupidity; and I’m not certain about the universe.”Well, it’s fun to carp, but the fact remains that people do play lotteries, in abundance.Ancient lotteries existed in China, Japan and India. While the Bible mentions casting ‘lots’at least 23 times, government lotteries were probably first introduced in China during the2 nd century BC, in a form called Keno. Keno tickets had 120 characters where playersselected ten using an ink brush. Carrier pigeons communicated the results. Keno isdistinctively advantageous to the house. Most casino games give the house between 1%and 5%, while Keno frequently delivers over 50%. © Z/Yen Group Limited, 2006 Risk/Reward Managers5-7 St Helen’s Place 2/25 tel: +44 (020) 7562-9562London EC3A 6AU fax: +44 (020) 7628-5751United Kingdom www.zyen.com  Why Do People Play The Lottery?Make Up Your Mind! Chinese lotteries helped finance the raising of armies and major governmental infrastructureprojects like the Great Wall of China. The first public English lottery was in 1566 forpublic works projects. Up till the 17 th century England had private lotteries, but privatelotteries became such a scandal that parliament outlawed them in 1699. In 1753 the BritishMuseum was funded by the proceeds of a scandal-ridden lottery sanctioned by Parliament,where £300,000 or more was raised and the Museum got less than £100,000. Nevertheless,UK mandarins were determined to emulate the Chinese and 2,200 years later the UKgovernment on 21 October 1993 established the National Lottery by an Act of Parliament.On 14 November 1994, National Lottery tickets went on sale in 10,000 retail outlets - theworld’s biggest on-line lottery launch. On 19 November 1994, 22 million viewers tuned into the BBC to watch the first National Lottery draw.This is a timely lecture as two days ago, on 23 September, we had National Lottery Day(yes, there is such a day) designed to tell us just how good lotteries are for us. The UKNational Lottery is a £5 billion industry. Since 1994, new products have included LotteryInstants, Lotto HotPicks, Thunderball and Dream Number. Today over 25,000 retail outletsoffer lottery tickets as well as online, phone and mobile services. During the past 13 yearsthe lottery spent over £19 billion on 240,000 good causes around the UK and created around2,000 millionaires.Lotteries are often run by governments and are sometimes described as a regressive tax, asthose most likely to buy tickets are presumed to be less affluent members of society. This‘tax’ charge is somewhat unfair, as lotteries are voluntary. Nevertheless, in the UK tax isimportant, after the 50% paid back to winners, 12% is a direct government tax take.Further, much political credit is taken for the 28% to “good causes” that is very much © Z/Yen Group Limited, 2006 Risk/Reward Managers5-7 St Helen’s Place 3/25 tel: +44 (020) 7562-9562London EC3A 6AU fax: +44 (020) 7628-5751United Kingdom www.zyen.com  Why Do People Play The Lottery?Make Up Your Mind! © Z/Yen Group Limited, 2006 Risk/Reward Managers5-7 St Helen’s Place 4/25 tel: +44 (020) 7562-9562London EC3A 6AU fax: +44 (020) 7628-5751United Kingdom www.zyen.com steered by the government through quangos directing the expenditure to the selection of causes, e.g. arts, heritage or supporting the London Olympics 2012 bid. So 50% goes tomotivating people to play and 40% is controlled by government. Of the remaining 10%,5% goes to retailers, 4.5% is spent running the lottery and 0.5% goes as profit to theoperator, a consortium called Camelot. Interestingly, the UK format of having a privatesector contractor run the system seems to mean that overheads are about half of those of most other state-run lotteries.This is not to ignore newer lotteries, such as Playmonday.com which promised to give evenmore money to charity, but has since had to scale back its ambitions. Nor can we avoidcomparing lotteries with the questionable use of television channel and other phone-in lineswhere people are kept waiting and paying supposedly to answer “skill questions” forreward; such as, “Question: for £50 find the anagram in CRO COD ELI, Answer:crocodile”. Nor can we miss seeing the ubiquitous explosion of gambling. Technologyallows us to choose among global games of chance, lotteries around the world, unless welive in the USA. Gambling may seem frivolous, but so are many other activities. Isgambling just glamorous entertainment, a social night out in a casino with friends or sittingat home alone on a computer? Is gambling just a mental and emotional amusement park, athrilling roller-coaster of highs and lows? Is gambling hard-wired escapism or an addictionsimilar to tobacco? But for tonight let’s stick to what we might learn from traditional state-run lotteries.There are a number of well-honed objections to lotteries at both a moral and mathematicallevel, moving from their silly odds to their preying on the weak and defenceless, toproblem-gambling, to underage-gambling, to money-laundering, to monopolistic abuse bymany governments, or to problems of discerning “additional good cause” expenditure froma supplementary government budget. Professor Mark Griffiths, Professor of GamblingStudies at Nottingham Trent University, points out that gambling also has direct publichealth impacts. Extensive evidence shows that lotteries are regressive; the poor spend moreas a percentage of income and sometimes in absolute terms as well. It is no surprise thatgovernments market lotteries heavily to low-income groups, yet odds do not seem thatimportant to players. Nietzsche noted that people feel better about success that they have‘willed’ over success based on ‘chance’.“He who wills believes with a tolerable degree of certainty that will and action aresomehow one – he attributes the success, the carrying out of the willing, to the willitself, and thereby enjoys an increase of that sensation of power which all successbrings with it.” [Nietzsche, page 49]So it should come as no surprise that giving players some control over the numbers theychoose seems to increase the popularity of lotteries; although in a well-designed lottery theselection of numbers should have no effect. In some respects lotteries highlight our desireto control the chaotic world we inhabit. If we win effortlessly, we wind up feeling guiltyabout not actually contributing to the win – hence every gambler’s desire to have a“system”, regardless of whether it can be objectively proved whether it works or not. Thisdesire for a “system” is not confined to gamblers. Technical analysis, or “chartism”, suchas a reliance on Fibonacci numbers or momentum oscillators, has a huge following in theCity’s financial district for bonds and equities. Yet empirical studies, such as one coveredin The Economist this week [“Buttonwood: Technical Failure”, 23 September 2006, page89], repeatedly show that technical analysis doesn’t work.
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