Wednesday, May 22, 2013

Lottery Mania

Last weekend millions of people held their breath to find out if they'd struck it rich. A record Powerball jackpot of nearly $600 million was up for grabs and when the numbers were drawn a lucky Floridian had won. All of this attention on the lottery really made me curious who was buying tickets.

The lottery is one of those contradictions that everyone acknowledges yet still persists. Nearly everybody understands that playing Powerball, scratch off tickets or a local lotto is a bad bet.  Yet the fact is most people knowingly throw their money away regardless (though of course some strike it rich). According to the North American Association of State and Provincial Lotteries 57% of the adult population play some form of lottery each year.  Clearly it doesn't require an abnormal mind or gambling addiction to be drawn into the lure of easy money.

What made me most curious however was the myth that the poor play lotteries disproportionately more than those who can more easily afford such diversions. A small amount of research led to some interesting results which makes another interesting case for being careful with statistics.  

There are of course two sides to this issue. Those who benefit from lotteries would like you to believe that the poor do not play lotteries more than the wealthy. Those who dislike lotteries would like you to believe that lotteries take advantage of those who can not afford them. Both sides are assumably working with similar statistics yet need those statistics to support their case. Here then are both arguments using the same (as far as I know) accurate statistics. This arguments deal strictly with whether lottery purchases disproportionately harm the poor and not with any benefits (such as funding schools or government projects).

The Case Supporting Lotteries

Lower income households are less likely to have purchased lottery tickets in the past year. 

"People with incomes of $45,000 to $75,000 were the most likely to play -- 65 percent had played in the past year -- while those with incomes under $25,000 were the least likely to play at 53 percent. Further, people with incomes in excess of $75,000 spend roughly three times as much on lotteries each month as do those with incomes under $25,000." source

A variety of other factors correlate favorably with the view that lotteries do not prey upon the disadvantaged disproportionately. Lower education individuals play the lottery less than more educated individuals for example. However, most of these factors are simply derivations from the main income statement (higher income correlates with higher education, higher income correlates with lottery purchases and so it is unsurprising that higher education correlates with lottery purchases).

Low Income individuals are also not any more likely than average to play the lottery to excess. Studies in several states have shown that lottery fanaticism is not restricted or overly prevalent at lower income levels.

In essence the poorest play the lottery the least and in no different a manner than the rest of society.

The Case Against Lotteries

Although the lowest income groups play the lottery the least and spend the least on lotteries they spend slightly more of a percentage of their income on lotteries. Census data shows that for each $10,000 decrease in household income, lottery expenditures as a percentage of income increase by .4%. So while lower income individuals spend less on lotteries overall they spend a larger percentage of their income. However, in general this statement holds true for most items. Lower income groups spend a larger percentage of their income on food, housing and energy than higher income groups for example. 

So the lower your income the less likely you are to play the lottery, the less you're likely to spend on the lottery, but the larger portion of your income you are likely to spend. It's an interesting situation where both sides of the argument seem to agree on the relevant facts but both can make reasonable arguments to support their perspective.  The danger lies in holding a bias towards one side of the debate, seeing their argument (which is reasonable) and accepting it without exploring it's counterpart. Now having been given the data from both sides of the debate you can decide for yourself which, if either, is most correct.

More economics next week. Until then stay safe and rational.

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