From the comments, on lotteries and education

by on December 16, 2013 at 2:50 pm in Economics, Education, Law | Permalink

John S. wrote:

States don’t use lottery proceeds to *increase* funding to schools. They tie the lottery to education as a marketing gimmick, both to sell it to the voters initially, and then to deflect criticism (what do you mean you don’t like the lottery — are you anti-education?) See http://goo.gl/f5b55R

We’re told we need lotteries because people would gamble anyway, and yet a large fraction of lottery revenues go toward advertising, presumably so that people don’t lose interest in it.

I also liked the remarks from ant1900:

This (http://en.wikipedia.org/wiki/Racino) suggests that the appeal of racinos is being able to bring in slot machines to an existing race track. After reading only a few pages of ‘Addiction by Design’ I can see why. The smart machines are now subsidizing the humans and the horses. The horses are probably the hook that convinces voters to allow horse tracks to expand into slot machines (‘we have had the hose track for many years and that has worked out ok, and they are already regulated and already in the gambling business, so let’s let them expand into slot machines, which is not a huge leap from betting on horses’).

gabe December 16, 2013 at 3:01 pm

Advertising $ has also been a good way to cycle tax dollars back into the family of politicians. It isn’t just to increase interest in gambling.

Dan Weber December 17, 2013 at 8:51 am

Controlling a budget of $10 million isn’t the same as being able to spend $10 million on personal consumption, but there are ways it comes close.

RPLong December 16, 2013 at 3:14 pm

So I asked a rhetorical question under AT’s post about guns and suicide: Given that some people get addicted to gambling, should that be illegal, too?

But MR has been consistent in arguing for drug legalization. So I am really nonplussed. Why does MR signal in favor of drug, prostitution, and human organ sales legalization while simultaneously signalling anti-gambling, anti-guns, and occasionally alcohol temperance?

Assume I would like to enlist in the Marginal Revolutionary Army. What are “we” fighting for?

Brian Donohue December 16, 2013 at 3:21 pm

Wait what? I missed the post where MR came out in favor of heavy state advertising in favor of liquor, cigarettes, or drugs.

RPLong December 16, 2013 at 3:25 pm

Okay, perhaps the problem is that subtlety is lost on me. I hope so.

Gabe December 16, 2013 at 8:17 pm

I don’t think it is a subtle difference. I would tell you to take a 1st grade level class in logic, but public schools don’t like to teach logic.

RPLong December 16, 2013 at 9:13 pm

Thanks Gabe, I’ll look into that.

Feel better?

Sam December 16, 2013 at 3:22 pm

The libertarian positions opposes interventions. The former are a list prohibitions; the latter, a list of economic bads which government is subsidizing and active promoting.

Finch December 16, 2013 at 4:04 pm

Surely no one could interpret the government’s actions as subsidizing gambling, guns, and alcohol? They are all heavily regulated or taxed or both. They must be severely undersupplied. For example, witness the state lottery monopolies on gambling, such as that in Massachusetts which is only just being prised open. And even in that case it’s the government dispensing regional monopolies in return for god-knows how much graft. There might be many negative ways to accurately characterize what’s going on, but subsidy is not one of them.

Finch December 16, 2013 at 4:21 pm

If I were to sort these in order of regulatory severity in the US, it would be human organ sales, gambling, drugs, guns, alcohol, and prostitution. From outright ban to tax-free tolerance. Personally, I don’t see an obvious rational for that ordering, just historical reasons. And in many cases, other countries seem to do it differently without ill effect.

wrparks December 17, 2013 at 7:36 am

I sometimes wonder if the regulation promotes sales. Without fear of state regulation, sales of AR15′s would be minuscule. The fear acts as an advertisement enticing people to buy one. I think it is the “I want it because I’m not supposed to want it” syndrome.

T. Shaw December 16, 2013 at 4:01 pm

“Assume I would like to enlist in the Marginal Revolutionary Army. What are “we” fighting for?”

Ans. You must fight for the right to PARTY.

I got a three word answer for anti-gun geniuses: “In Animate Object.”

Jan December 17, 2013 at 6:16 am

Same goes for nuclear weapons, amirite?

TMC December 17, 2013 at 11:58 am

And cars and knives and hammers and paperclips and pencils made with REAL lead, not that graphite bullshit.

albatross December 16, 2013 at 5:35 pm

Who knows, there may even be one or two people reading who aren’t looking to join anyone’s army, but are just interested in understanding the world better.

FWIW, it’s possible to recognize that drugs, smoking, gambling, loose women, tobacco, etc., can have bad effects, without automatically deciding that those things must be banned.

sailordave December 17, 2013 at 6:20 am

“we” are fighting for subtle differences that matter _at the margin_. Hence the name “marginal revolution.” Subtle differences at the margin matter; they can be achieved via logic and evidence; they accumulate through time, the gains compound exponentially, and in the long run they affect wealth and happiness more than all the zero-sum issues politicians wage big emotional name-calling fights over.

Jane the Actuary December 16, 2013 at 3:22 pm

Fun fact: in Illinois, the Lottery Commission was in the news the other day for complaining that the private company responsible for running the lottery wasn’t being successful enough in marketing the lottery to “affluent” Illinoisians by designing games that would appeal to them. The article mystified me because I can’t see any type of lottery game that an affluent, educated individual would be more likely to be attracted to than a poor, math-illiterate person.

http://janetheactuary.blogspot.com/2013/12/shocker-illinois-lottery-failing-to.html

Mitch Berkson December 16, 2013 at 3:50 pm

They could start one that costs $1,000 per ticket…

JWatts December 16, 2013 at 5:58 pm

It worked as an iPhone app. But Apple did get some complaints about it.

$999.99 “I Am Rich” app – http://gizmodo.com/5034701/confirmed-eight-morons-bought-the-999-i-am-rich-iphone-application

Finch December 16, 2013 at 4:05 pm

Legalized online poker, maybe.

F. Lynx Pardinus December 16, 2013 at 4:08 pm

Professor Hubert J. Farnsworth: “Twice around Central Park. Loser has to make the winner’s Medicare copayments for a year! A’ight. On one.”

Gordon Mohr December 16, 2013 at 4:34 pm

The State offers many randomized but positive-expectation Lottery Games for the affluent. For example, ‘Lobbying’ and ‘Elective Office’. Dreams can come true!

Brian Donohue December 16, 2013 at 4:40 pm

Yeah, the state’s promotion of gambling over the past 30 years is so weird and unhealthy. Contrast with the (don’t hate me libertarians!) policy on smoking.

Slocum December 16, 2013 at 6:21 pm

Hmm, doesn’t the NYSE operates just such a lottery? I’m pretty sure the customers for the companies advertising ‘professional’ trading tools on CNBC are generally affluent (or were until they start using ‘tools for active traders’).

nl7 December 17, 2013 at 1:22 pm

Alternatively, maybe people with less disposable income are acting at least somewhat rationally and their purchase enables the consumption of positive emotions. For a little while, they can feel like they might suddenly get rich (or at least get a moderate windfall and buy something nice) and so they play the lottery. If they play it enough, whether it’s lotto, scratchers, or whatever, maybe they can feel at all times like they might win big any week now, so the consumption is effectively permanent (even if it’s a low-level feeling).

People with money, who may be journalists or art history majors with probably weaker grasps on math than the average contractor or cable installer, don’t need to buy the feeling that they might one day have money. If you have money, then you have the good. Maybe some people gamble not just for stupidity or compulsion, but so they can effectively rent the feelings of personal security that those with means just take for granted.

Sure, gamblers and lotto players tend to be poorer and less educated, but I think it’s more than just rubes being conned. Gambling lets a person pretend for a while that they could soon be winners or soon have some real money. Obviously rich people aren’t going to be the target demographic here, but the motivation in many cases may not be appreciably different from people buying movies, video games, prostitution, or vacations for the psychic and emotional benefits.

Marie December 17, 2013 at 6:48 pm

I think an apt comparison for the wealthy would be car leases.

Objectively, they make no math sense. Subjectively, any one individual might get out of leasing something that is of value to him or herself.

I think it’s right to recognize that people don’t just do things because they are math illiterate, or dumb, or whatever. Sometimes people make a choice to purchase an item because they get something out of it that you would not, that does not make that person less intelligent than you are, or less math literate, it just makes him a person in a different situation.

At the same time, the problem with lottery (and with leasing) is that there can be an inherent predatory dishonesty to the thing. Then there’s the government involvement. I would much rather see folks gamble in a neighborhood pool (not that deception is impossible there) than have government entities involved. The power disparity alone makes for hazards.

mike December 17, 2013 at 3:21 pm

Check the expected value of PowerBall when the jackpot has rolled over sufficient times. The huge jackpot makes its value considerably higher than the price of a single ticket. So an affluent, math-literate might buy one of these lotto tickets sometimes.

msgkings December 17, 2013 at 3:31 pm

This is absolutely correct. The Mega Millions jackpot is up to this level now.

Gordon Mohr December 17, 2013 at 6:43 pm

*Closer* to the level where it’s a fair bet… but not quite.

Present cash value of tonight’s Mega Millions jackpot was reported a few hours ago as $341 million, before taxes. Assuming an effective 40% tax rate (perhaps low for the major Mega Millions states?), that’d be about $205 million after-taxes.

Odds of picking the right numbers are 1-in-259 million. So still not a good bet.

And the math gets even worse if considering the likelihood of splitting the pot, as becomes more common on these big jackpots.

greg December 17, 2013 at 9:57 pm

They usually advertise the much larger annuity payout rather than the lump sum payout. You quoted the $341M (which is indeed what you should use to determine the expected value), but ticket purchasers are hearing $636M. When you hear the larger number, for a second it sounds like the expected value is positive. But then you factor in time value of money, taxes, and jackpot splits, and it’s not even close.

Bill December 16, 2013 at 4:01 pm

The NRA is proposing a high capacity gun lottery

Whereby guns are sold without background checks or gunlocks.

Newtown and Columbine were the latest winners.

We regulate gambling more than guns.

Urstoff December 16, 2013 at 4:08 pm

what

T. Shaw December 16, 2013 at 4:45 pm

I keep enetring those lotteries and never win! As a Life/Endowment member, it’s free.

Bill is more likely to win the $550 million Mega millions (odds 1:275,000,000) than he is to be shot by an (inanimate) assault weapon.

Mark Thorson December 16, 2013 at 5:22 pm

I was wondering what the odds of winning are. Progressive lotteries (in the best sense of the word “progressive”) sometimes have odds/stakes ratios that go in favor of the player. However, $550 million is a misleading number because that’s if you take the slow payout. If you take the immediate payout, the number is much smaller. Plus, you have to factor in the possibility you’ll have to split the jackpot with other winners. So, I don’t know if we are yet in the favorable odds/stakes zone yet. Is there a website that has an analysis of this problem, applied to the current game?

I might consider buying a ticket or two. If so, I’ll bet on the Fibonacci or Lucas number series or something. That way if I win, when I’m interviewed on TV I’ll say the lottery is fixed — you can compute it mathematically, and here’s how I did it.

albatross December 16, 2013 at 5:38 pm

I predict that this week’s winning lottery number will be a sequence of digits that appears somewhere in the decimal expansion of pi.

Mark Thorson December 16, 2013 at 5:46 pm

Or e. I may as well bet on the triangle numbers, pi, primes, and any other sequence I can think of. Of course, this lowers my expected payout because I’ll have to share the jackpot with everybody else doing the same thing, but presumably they’ll all be people with STEM degrees too, so I can cite that as additional proof that the lottery is fixed and only other smart people know that.

JWatts December 16, 2013 at 6:00 pm

” If so, I’ll bet on the Fibonacci or Lucas number series or something. That way if I win, when I’m interviewed on TV I’ll say the lottery is fixed — you can compute it mathematically, and here’s how I did it. ”

And that is an awesome comment. Kudos.

Bill December 16, 2013 at 5:59 pm

T. Shaw.

You shouldn’t take that bet!!!

The odds of be killed (rather than just injured) by a gun are 1 in 514,000, according to the Economist. Quite different than the 1 in 275 million for the Mega Million jackpot.

Goggle probability of being shot for more statistics.

http://www.motherjones.com/politics/2013/01/pro-gun-myths-fact-check

Urstoff December 16, 2013 at 6:24 pm

Conditional probabilities, how do they work?

Bill December 16, 2013 at 6:42 pm

Urstof, what’s the conditional state? Being alive?

Mike December 16, 2013 at 6:45 pm

He specifically mentioned assault weapons, not guns in general, and most of those killings are with handguns. The other point–I think–was that inanimate objects don’t actually do anything without a person operating them.

msgkings December 16, 2013 at 7:07 pm

Is it possible that the higher regulation of assault weapons (vs handguns) is working? Which would mean your chances of getting killed by one are far less (than getting killed by a handgun)…

Bill December 16, 2013 at 7:34 pm

Mike, So, he limits his response to assault weapons, and not guns in general. What a way to mislead. Must be that only assault weapons kill people.

Andrewl December 16, 2013 at 9:52 pm

Bill, t.shaw is talking about the firearms themselves in that they cannot spontaneously shoot anyone. For example: the metropolitian museum of art in NYC has over 150 firearms on display for the general public, and even though more than 6 million people visited the museum in 2012, not a single visitor was shot by a gun on display.

Urstoff December 16, 2013 at 10:18 pm

Conditional on you being ab average MR poster (and the demographics that being such entails), the odds of being injured by a gun are much less than the number of gun injuries divided by the population. Probably still higher than winning the lottery, but low enough that it’s not a consideration for rational people.

mavery December 17, 2013 at 8:36 am

So guns are safe, provided they’re all kept in museums?

AndrewL December 17, 2013 at 9:32 am

No, a gun is an inanimate object, it is neither safe or unsafe anymore than a hammer, step ladder, tree or rock is safe or unsafe. So ascribing a “danger” to inanimate objects is just nonsense and silly.

TMC December 17, 2013 at 12:05 pm

Bill, don’t buy a lottery ticket and stay out of bad neighborhoods.
Chances of winning the lotto and getting shot are basically the same.

JWatts December 17, 2013 at 1:25 pm

“Bill, don’t buy a lottery ticket and stay out of bad neighborhoods.
Chances of winning the lotto and getting shot are basically the same.”

Your odds of winning the lotto big are the same whether you buy a ticket or not, at least to 4 significant digits

albatross December 18, 2013 at 11:41 am

On the contrary, I think we all recognize many things that are dangerous but sometimes useful–guns, dynamite, chainsaws, defibrilators, firemens’ axes, powerful medicines, weapons grade plutonium, etc. The question is always about which of those things are too dangerous to be worth having in your possession, and which are so dangerous that the law should restrict who may possess or use them.

chuck martel December 16, 2013 at 5:25 pm

A Minneapolis cop recently had his personal car burglarized in capital city St. Paul. Among the items stolen were his Glock service pistol and two loaded 14 round clips, a ten round clip, and a small pile of more .45 ammunition. Evidently the Mill City is comparable to Fallujah if you’re a cop.

Turkey Vulture December 16, 2013 at 8:03 pm

In every place I have lived it has been easier for me to go gamble than to go buy a gun. Typically it was gambling offered by the State itself. But yeah I guess if you want equivalent treatment of guns and gambling we could put some gun vending machines in all your local grocery stores.

Bill December 16, 2013 at 9:05 pm

Do you really think we regulate guns more than gambling or lotteries?

Tell you what. Meet me at a gun show in the presence of a policeman, sell me a gun, and then watch me try to start a high stakes poker game in the presence of the policeman.

Urso December 16, 2013 at 9:09 pm

Awesome. Meet me at a casino, in the presence of a policeman, and watch me try to join a high stakes poker game. Then try to sell me a gun.

Bill December 16, 2013 at 9:40 pm

Maybe you can get the casino to call it a gun show to make it legit. I’m sure the NRA would support you.

wrparks December 17, 2013 at 8:48 am

Maybe you can get the state to call the gun show a lottery to make it legit……

I’d say they are about equally regulated within their sphere of influence. A casino is akin to a gun show. Basically anything goes. A gun shop is more like a gas station. Only certain types of sales are legally allowed.

The difference?

Turkey Vulture December 17, 2013 at 12:07 am

I do, especially if we attempt to nail down categories within “guns” and “gambling” for further analogy. Some firearms are highly regulated and either completely illegal or nearly impossible to legally acquire, depending on the jurisdiction; similarly, high-stakes gambling tends to be more heavily regulated and policed, and I could believe that if you tried to start a $5k buy-in poker game in the presence of a police officer, he may take action. At the other end of the spectrum would be low-capacity or single-shot .22s or shotguns, and $5 poker games – if you try to arrange the sale of a 20 gauge shotgun or a $5 poker game while sitting next to a police officer at a blackjack table, I doubt he will plan to take any action.

But I can easily walk to the corner store, or grocery store, or gas station in the two States where I have spent the vast majority of my life (NY and MA), and spend $100s on State-controlled lotteries with terrible payouts. My brother worked the counter at a gas station for years, and said that on pay day there were some regulars who’d come in and spend half their paycheck on scratch-offs. The State isn’t just allowing this compulsive, self-destructive behavior: it is providing the games and spends millions of dollars actively encouraging it.

In MA I actually need a license to possess any firearm, whereas growing up in NY no license was needed for hunting rifles and shotguns, both of which our household was well equipped with. Had I wanted to acquire a lottery ticket and a gun from a store at the age of 12, it would have been far easier to acquire the former (from a vending machine – in fact I feel like I probably did this at least once) than the latter.

plaza December 17, 2013 at 9:25 am

“I could believe that if you tried to start a $5k buy-in poker game in the presence of a police officer, he may take action.”

His only action would be to throw down a fiver.

JWatts December 17, 2013 at 10:03 am

“The State isn’t just allowing this compulsive, self-destructive behavior: it is providing the games and spends millions of dollars actively encouraging it.”

+586 million

john personna December 17, 2013 at 11:02 am

Why does anyone think lotteries encourage gambling?

The experience is very negative. Surely any player’s expectation of winning falls over time. The number who commit large sums must fall as well.

This after some new-lottery blip in interest/addiction.

mulp December 16, 2013 at 6:03 pm

State lotteries are the conservative alternative to a State income tax to pay for schools in addition to property taxes which under fund the schools in the poor areas.

Then conservatives oppose gambling as hurting the poor….

…who do not own property and thus have a hard time connecting school and rent, especially when the landlord claims a 10% hike in property tax will require a doubling of rents.

On race tracks, given the refusal of so many to not be doing something 100% of the time, what do you do at a race track when it takes 5 hours to run 30 minutes of racing 10 races 3 minutes long.

Do they have a marching band with drill team perform between races?

Racing was, like so many other events in the past, a social event. Baseball is a slow paced event where efforts are being made to speed up play. Rules were changed to yield more home runs to create action. One way baseball has tapped into the social is with the business-focused skyboxes. Bowling was once a popular slow pace event built on socializing. Bowling alleys added arcade games to appeal to the easily bored. Listening to and singing music, and dancing were once big social events.

Marian Kechlibar December 17, 2013 at 5:04 am

You *are* determined to see the political angle in everything, aren’t you, Mulp?

State lotteries are pretty much everywhere, regardless whether the country is oriented to the left, to the right or does not fit the left/right scheme at all (non-Western countries). Only strong religious prohibitions can bar the state from collecting easy money from the gamblers. The revenue stream is just too tempting to ignore.

JWatts December 16, 2013 at 6:15 pm

“State lotteries are the conservative alternative to a State income tax to pay for schools in addition to property taxes which under fund the schools in the poor areas.”

That’s just a weird partisan snipe with not much in the way of facts to back it up. In point of fact, there are only 6 states without state lotteries. The states without lotteries are: Alaska, Alabama, Hawaii, Mississippi, Nevada & Utah.

Tom T. December 16, 2013 at 11:46 pm

Advertising presumably is meant to help a lottery compete with other lotteries in particular, and not just with other forms of entertainment in general. I (like Tyler) have five lottery systems within easy reach of my home or workplace, and most of these offer numerous variants or sub-games.

Turkey Vulture December 17, 2013 at 12:23 am

I would think that a large portion of participants are a more-or-less captive audience, with their choice being between My State’s Lottery or No Lottery, not between various States’ lotteries. Advertising seems aimed at creating (and/or maintaining) demand for lottery gambling, not at shifting sales between lotteries.

Perhaps in certain parts of the East (like where you are, presumably) where many jurisdictions are close together, there is more lottery v. lottery competition. But in Western New York, with Pennsylvania and Canada both about an hour and a half away, all advertising seemed aimed at the lottery v. no lottery choice.

Jay December 17, 2013 at 12:24 pm

These other five lottery systems within reach are presumably other state-run lotteries? Otherwise, why would the state have a lottery at all? If it is revenue “for the children” then tax the private lotteries as it does for liquor, cigarettes, and gasoline.

Ronald Brak December 17, 2013 at 12:24 am

With a state lottery you could at least make part of the payout conditional on correctly answering a couple of multiple choice questions on the lottery ticket about basic probability.

JWatts December 17, 2013 at 10:05 am

Isn’t that how it works already? ;)

Ronald Brak December 17, 2013 at 5:41 pm

They answer one question each time they buy a ticket, but there doesn’t seem to be much learning going on.

Mike December 17, 2013 at 1:28 am

“We’re told we need lotteries because people would gamble anyway, and yet a “large fraction” of lottery revenues go toward advertising, presumably so that people don’t lose interest in it. ”

One data point: Oregon lottery spends ~ 13 million advertising per $1 billion in net win (player losses.) I’m not sure 1% is a large fraction.

Jay December 17, 2013 at 12:26 pm

“One data point”…you answered your own post.

L. F. File December 17, 2013 at 7:36 am

Lotteries – state run or not – promote gambling and require marketing that entices the gullible – generally the poor – into unwise spending. Lottery bonds are a much better alternative. Many countries sell bonds – U.K Premium Bonds may be the most familiar example – that distribute interest based on a lottery of bond holders. The bonds can be purchased like lottery tickets and redeemed for face value at any time. A few very large prizes and a large number of small ones are awarded such that returns on any individual bond are only slightly less than the government debt issues. This system provides funding for government programs and promotes saving rather than gambling.

lff

lff

Bill December 17, 2013 at 2:02 pm

State lotteries operate on the Principle of Say’s Law:

Supply creates Demand.

The Supply of past Losers creates a bigger pot,

Which attracts more Losers.

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