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January 23, 2006

Lotteries as regressive taxes

Abbas has an interesting post at 3Quarks about the ethics of gambling.

Abbas argues that is gambling is morally problematic because it exploits near-universal human weaknesses in probabilistic reasoning. He thinks its bad enough when private businesses sponsor gaming for consenting adult customers. State-sponsored gambling he thinks is really beyond the pale.

State lotteries are often justified on the grounds that they raise money for social programs, especially those that target the neediest members of society. However, the poorest members of society tend to spend (and, by design lose) the most on lottery tickets. Some state lottery proceeds fund programs that benefit everyone, not just the poor. Often state lottery money is being systematically redistributed upwards--from lotto players to suburban schools, for example.

I'm ambivalent about state lotteries (and I don't know enough about the economics of state-sponsored casinos to have an opinion on those). I agree that state lotteries are unseemly for the reasons that Abbas points out. On the other hand, maybe the fun of playing the lottery combined with the revenue for social programs justifies their existence on the whole.

I know, lotteries exploit human weakness. Admittedly, I'm somewhat hostile towards people who buy lottery tickets. Or at least towards people who buy lots of lottery tickets. I can sort of see the entertainment value of an occasional Mega Millions ticket. But playing the lottery heavily is just stupid. I'm not saying that these feelings are morally or rationally justified. Really, I shouldn't care what consenting adults do with their pocket money.

I've always subscribed to the maxim that a lottery is a tax on idiocy. If people think it's fun to give their money to the government, I don't know why they should be stopped. People aren't going to stop gambling if the State gets out of the business. They'll just spend their money in the underground economy, or through private gambling establishments that will pay back a much smaller percentage of that money in taxes. I realize that this argument might be motivated by my aforementioned morally indefensible feelings of hostility, so feel free to discount it accordingly.

On the whole, I tend to think that the ethics of a State lottery depend entirely on the empirical details of the lottery in question.

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» Musings on the Idiot Tax from Rants for the Invisible People
Majikthise has written a musing on state lotteries, and their exploitation of those who need their pocket money the most. At one point, she mentions the lottery system as being a tax on idiocy. On this, I have been musing. Now, truly, ... [Read More]

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Government should not be in the business of exploiting the cognitive deficiencies of its citizens for monetary gain. Right? But state lotteries do just that, as Abbas at 3 Quarks Daily argues... [Read More]

Comments

Lotteries create a situation in which desperate people are constantly confronted with a perceived opportunity to improve their lot. Consider a person who's buying a small batch of groceries, and mindful of overdue bills. The temptation to buy $5 worth of scratch-offs can be overwhelming when the person considers that a win might make it possible for her to buy a new jacket for her child to wear to school. For a poor family, those $5 "investments" add up quickly.

Posted by: gordo | January 24, 2006 at 02:04 PM

EXACTLY.

It functions like candy shelf in grocery chasier line to a kid.

My solution to state sanction gambling?

Build a gigantic Casino, in Gated community.... ONLY for rich and well to do.

Hell toss in several mountains of free cocaine too, see if I care. Frankly, those southern churches should be given....ALL GAMBLING right and drug importing they want. That will solve so many problems. Consider it darwinian solution by using damaged pleasure control system.

(thank gawd, I am not a dictator eh? lol)

Lotteries create a situation in which desperate people are constantly confronted with a perceived opportunity to improve their lot. Consider a person who's buying a small batch of groceries, and mindful of overdue bills. The temptation to buy $5 worth of scratch-offs can be overwhelming when the person considers that a win might make it possible for her to buy a new jacket for her child to wear to school.

Overwhelming? Every time? That just seems unlikely to me.

Although I tracked back my own thoughts, I thought I'd mention it here, too. The odds of the Canadian 6/49 lottery are 1 in 14 million. According to the NY Times, for a family making 20% of the nation's national average income, it will take 4 generations for this family to be making an average income. Mobility in 4 generations.

That suggests to me that a 1 in 14 million chance of making it rich in 1 generation is actually pretty good odds compared to making it rich - or even middle class - on the sweat of your brow. That's sad on a number of levels, but I'm not sure that extra $5/week invested (hee hee, that's hilarious) would make much of a difference to the family overall anyway. It'd probably wipe out their Medicaid benefits, actually... if it grew. You can't get welfare in Canada if you've got more than $500 saved. So, you don't buy tix, and then it gets spent in one moment of bad luck. While you're changing jobs. Or it prevents you from getting back to work loans. If you're really poor, a tiny bit of money hanging around tends to screw you, not help you: you spend that $500, and then spend six months fighting bureaucracy to show that you spent it legitimately...

It's easy to see idiocy if you've got the resources with which to make it up a level, or if you're at a level that supports a decent life.

Does it suck? Yes. But I'm not sure it's idiocy. Seems to me that the odds of merely making it are pretty low.

I've always subscribed to the maxim that a lottery is a tax on idiocy.

Is there a conflict of interest when it's also the state's responsibilty to educate these potential lottery players?

Is there a conflict of interest when it's also the state's responsibilty to educate these potential lottery players?

Posted by: Scott | January 24, 2006 at 10:52 PM

yeah, they print out the winning probability on the back of scratch off lottery. But seriously, who read those?

That's just like those tiny warning label on cigarette. How can it compete with gigantic advertisement for it?

I don't even think they inform byer on bigger lottery.

Eli--

I don't remember saying "every time." What I did say is, "the real impact of lotteries is that they inflict severe damage on some families in order to provide marginal good to others." Do you deny this?

I just think it's idiotic to enjoy playing the lottery. I don't believe that everyone who plays is stupid. However, if you don't get terrified by the prospect of getting hit by a car on the way to buy your lottery tickets, the emotional thrill you get from buying the ticket is based on deep inconsistency.

If I were chronically desperate for money, I'd rather buy a real luxury with my pocket money and fantasize for free. I mean, there are an infinite number of astronomically unlikely events that might result in me getting rich: unknown rich relative making a bequest, free giveaways from 30 local merchants in a row, Publisher's Clearinghouse, being discovered on the street by a talent agent, finding money on the ground, etc., etc. Any of these fantasies could come true. They're all independent events. I can invent enough of them that might happen to come up with a set of odds comparable to winning the lottery and still spend my real hard-earned money on a movie ticket, or a pizza, or whatever.

If you really understand the odds against you, playing the lottery is an emotional dead letter (unless your emotional reactions to the odds swing so wildly that you can't bear to leave your house or drink the public water supply). So, why not buy a chocolate bar or something real that you couldn't otherwise afford that will improve your life right away, for sure. Realistically, your life isn't going to be transformed by a lotto ticket. Sure, it's possible, but it's not a level of possibility that you yourself are generally willing to take seriously. Hence the accusation of (situational, isolated) idiocy.

I just think it's idiotic to enjoy playing the lottery. I don't believe that everyone who plays is stupid. However, if you don't get terrified by the prospect of getting hit by a car on the way to buy your lottery tickets, the emotional thrill you get from buying the ticket is based on deep inconsistency. Both responses are based on a specific instance where emotional reaction and real-world interest don't coincide. It is good to be aware of these instances, but there is nothing idiotic about exploiting small, controlled ones for entertainment purposes.

It certainly is based on deep inconsistency, but I don't see how it's idiotic - or anything other than the clear norm among humans - to have different emotional reactions to similar odds of different (albeit proportionally equally life-altering) events occurring. The lottery players I know are just aware that they get an unjustified emotional rush from the chances of winning, and hack that emotional response for inexpensive entertainment purposes. Calling that behavior idiotic seems pretty much the same as calling it idiotic to cry when people die in movies because the people aren't even real.

And gordo: what you said is that the money spent is because people are "overwhelmed" and that it "adds up quickly." For those apparently totally agency-free expenditures to add up particularly quickly, they'd need to happen, if not every time people went to the store, a large percentage.

My dog can hold herself back from grabbing food off the table most of the time, despite how totally awesome it would likely be for her to eat a turkey sandwich. I just don't think poor Americans (or Canadians) are dumber than or have less capacity for personal control than my dog.

Yikes. The non-italicized portion after the quote should go at the end of my first paragraph of response. My bad.

My dog can hold herself back from grabbing food off the table most of the time,
Posted by: Eli | January 25, 2006 at 10:08 AM

control and freewill is highly overated, not to mention varied widely. There is always something in somebody's personality that can be hacked and exploited.

Low price lottery is one of those thing. It is a large scale market exploitation. Hacking people's weaknesses on ability to grasp 'game of chance'

Plus. I think your little puppy is a pretty bad standard. :p. I counter surf all the time.

Eli--

It's clear that you're determined to skip my central argument and nit-pick a hypothetical example instead. Fine. Here's a survey of a study of the lottery's impact on poor neighborhoods from the Las Vegas Sun:

http://www.lasvegassun.com/sunbin/stories/text/2003/oct/22/515768221.html

And here's a commentary by the Acton Institute, including data from a Gallup survey:

http://www.acton.org/ppolicy/comment/article.php?id=185

Gallup uncovered a key fact: "...people who played the lottery with an income of less than $20,000 annually spent an average of $46 per month on lottery tickets. That comes out to more than $550 per year and it is nearly double the amount spent in any other income bracket."

That's an AVERAGE of $550/yr for players with less than $20,000. Many in that group will spend $1,000 or even $2,000. Will this create significant hardship for these families? Is the state being fair to the family members of these compulsive gamblers? Will the state services that the lottery is supposed to be supporting be strained by the damage done by the lottery? And what about the people with mental illnesses like bipolar disorder? Can we spare a bit of compassion for them when they blow an entire Social Security check on the lottery?

And how is all this justified? The LV Sun article says that lottery supporters "cite the 30-year-old state lottery (Maryland's) as a model of how state-sponsored gambling can rake in big money without alienating the public." So we're back to having the state inflict great harm on a few families in order to provide marginal benefit to others, aren't we?

Okay here are two arguments that I think fairly hard to ignore. Most of discussions swirls around the abstract and distance perceptions.

let's bring it down to street level, down and personal.

1. Go live on th street, just as a mental exercise once in a while. See how the forgotten lived. (one. You will start to notice the little thing that makes one human dissolving. Little thing like, sweet, a smile, able to spend money without sheer angst, comfy climate, nice warm meal, be treated decently, friendly gaze.)

So lottery vs. will to control spending? Imagine this internal thought. (let me spend this little luxurious gesture, little hope and idle dream of coming out on the misery of live. 5 minutes of thoughts filling the expanse of despair and daily grind.)

You'll be pretty cruel to yell at somebody to stop spending money on lottery. Specially if that person won $5 last week on his scratch off ticket and he can buy himself a good warm cup of coffe with plenty of sugar.

2. Here are a list of you to choose, you 'free will' ubermensch. I put all the variables that plays into lottery and give you 5 seconds to decide. Don't eff up.

- 1:2, $25, doesn't carry over (My friend just won $50, the othr day)

-1:15,000,000, $3, carry over. (current prize $30M, people in the cafetaria are buzzing about this latest lottery. gotta buy pal. fun.)

-1:5, $2.50, carry randomly, Clerk runs out of $5 bill, she asks you if she wants something. She says people has been winning a lot on those scratch off ticket)

-2:3, $50, doesn't carry, neighborhood raffles.

-1:35,000, 1penny, doesn't carry. Sunday nite drinking game pocker.

-1:1.045, $150,000 initial, complex modelling, your broker call. He says the intial modelling holds as long as temperate weather holds and exchange rate holds steady. hedging optional.

--------------

Now,

tell me all you smarty pants. What you think of game of chance now.

are you going to start pulling out stat 101 text book and calculate the probability vs. return table?

5 seconds to decide on each.

gordo: Actually, what I was "nit-picking" was your use of language that completely robs low-income individuals of their basic human agency. Agency is a concept we need to keep intact in some form for all people if we want to maintain an ordered society.

Your argument is also entirely contingent on the assumption that but for the lottery, the individuals in question would spend every dime of their money on something you would approve of - since, apparently, you're assuming some kind of uninvited advisory role over their expenditures in this discussion. I don't see any reason to think this assumption is correct. The highest spenders likely have gambling problems what could be satisfied elsewhere. The moderate players are simply making an entertainment expenditure. Great. I'm not in the business of telling low-income people that they shouldn't spend a dime on entertainment. When they spend those entertainment dollars on the lottery, the money goes to their state government, which can provide services to the general population. This, to me, seems more desirable than sending those entertainment dollars to a casino, or a record label, or a movie studio.

The figures you quote are interesting, and it's difficult for me to comment on them since you just posted a brief news story and an analysis from a clearly partisan site. It makes perfect sense, though, that the lottery would be more appealing to individuals with lower incomes. That simply means that their money will go there, while the entertainment dollars in higher brackets will go somewhere else. This would, as Lindsay says, definitely undermine the morality of a lottery that was highly upward-redistributive. But it doesn't undermine the moral status of a lottery that isn't.

No one is arguing that a lottery is a better income generator, in the most perfect of worlds, than, say, a tax on the upper income bracket. But in this reality, every state has a threshold over which an additional direct tax increase is not politically feasible. For many states, the revenue generated at this point is well below what is needed to provide basic services. the question is if the lottery is justified as an additional revenue stream.

Amen, Squashed Lemon.

Look at it this way:

You're a 45 year old mother of two. You work a factory job, and do a little pick up cleaning work on the side. Your kids are both in high school, and they want all these crazy things: an XBox360, Adidas, Nike. You're carrying almost $20,000 in debt, some on a car that blew out.

Each paycheque, you put aside your rent, and you pay bills, and you buy food and bus passes. When you buy these things, there's often a buck or two left over. You put that on lottery.

Why? Because you have ZERO realistic hope of ever spending a summer in Europe. You have ZERO realistic hope of paying down your debt and saving enough in time to have a comfortable retirement. You're bloody well tired of every penny you have being scraped off to the man in one way or another.

Wouldn't it be nice if you were allowed to have the hopes of the younger, the privileged, the trust fund kids? That would rock. Even for a second.

You don't want another buck a slice, and your mad money isn't enough to take your whole family out (or when they are younger, to pay for sitting). This money is not going to *aggregate* and provide anything meaningful. (Anyone who thinks that hasn't been really poor.) Certainly, it's not going to aggregate to something worthwhile, something more beautiful or functional than all the made in Taiwan crap you've already got. You can afford more of what you can afford, with that extra dollar: what you want is a shot at that life you'll NEVER afford. The one with good dentistry. Or travel. Or lack-of-worry.

There are desperate, realistic people, who know that their "shot" at it has passed, and they'll probably end up not much more comfortable than they are now. Those people are people who'd like to imagine "going to Greece" someday, or maybe (like someone I know), getting their *teeth* done so as not to humilate and hurt them anymore.

These people aren't IDIOTS. They know they're not going to hit the jackpot: but they also know it's more likely that they'll hit the jackpot than discover cold fusion.

I'm not saying I think the lottery is a fabulous investment, or anything. However, I think calling people who use the lotto idiots, or unaware, is awfully unaware of what it is to have no personal hope of advancement. As someone who grew up poor, it rankles: I understand the "those effin' elites with their lattes" response to that.

If you know you're not going to win, why do you feel good when you buy a lottery ticket? Fantasy is fun, but it's free. The only reason to spend money on a lottery ticket is that it generates the feeling like you might win. If it didn't, you wouldn't need to buy the ticket, you could just imagine winning the lottery (or any one of a number of equally unlikely scenarios that involve you getting rich without spending money).

Buying lottery tickets is paradoxical. If it's rational to buy these tickets, it makes sense because of the disposable pleasure that you get between the time you buy the ticket and the time you realize you lost. But unlike food, or drugs, or other disposable pleasures, the enjoyableness of the experience is contingent on some kind of belief that you might win. So, if you really know that you're not going to win, how is it that you can enjoy the experience of buying the ticket?

Lindsay: What you don't win is the big jackpot. Most lottery winners win a little something with some regularity. There's a one in 32 chance for a free ticket, I think? Conditioning is a big part of lottery *addiction*, which is a different issue than simple lottery hope; operant condition works on sporadic reinforcement better than on consistant reinforcement, if I remember correctly.

But that's addiction. People win the lottery. Maybe 70 6/49 winners a year. It's not a zero chance that you'll win the lottery and go to France vs. the zero chance that you'll discover cold fusion, make a million and go to France. It's this infintesimally small chance that will probably never happen to you or anyone you'll ever hope to know that you'll win the lottery and go to France vs. the zero chance you'll do it yourself.

People can imagine things like massive building size piles of tickets, and you have to close your eyes, dive in, and get your hand around the right one. They know that's never going to happen. Except very, very rarely. They'd pay money to jump in that pile, too.

No one I knew, growing up, thought that they'd do anything but live and die poor. Some of this may be personal choice (I could do better but I'm caretaking my Nana), some of it may be personal doubt (I'm an idiot anyway and couldn't get through school), and some of it may be inability to see any other option (everyone I ever knew worked at the meat packing plant.)


What we're dealing with is very different views of economy.

It's not paradoxical, because the nexus between your knowledge of the probability of an event occurring and the way you process that probability emotionally is imperfect to begin with and particularly attenuated when it comes to events with high costs/windfalls and low probabilities.

It would be idiotic to disregard the odds you know and treat your emotional response as an accurate indicator of the probability of winning.

It would be idiotic not to be aware of the asymmetry of the emotional response to the actual odds, or not to make efforts to either remedy that asymmetry or insulate it from your assessments of actual probability.

But, if you have successfully identified it as a purely emotional response that does not reflect the outside world - meaning that if emotional responses were perfectly symmetrical with the actual level of danger or opportunity you face, this would not be the emotion you'd have - but you then decide that the rush you receive is worth more to you than the price of the ticket, there is absolutely nothing idiotic about buying the ticket.

No one's emotions function as a perfect mediator of risks and opportunities, as much as they may at times provide a useful, split-second guide. Some people have this specific asymmetry, and have identified a way they can exploit it to induce a positive feeling that they desire. I just don't see the idiocy. Your characterization seems to assume that it's automatically idiotic any time emotional response does not adjust to actual risk efficiently. Since emotional response so often doesn't adjust to actual risk efficiently, it seems like the idiocy would be in refusing to acnowledge this inefficiency or account for it. Lottery players aren't refusing to acknowledge it or account for it - they're exploiting to create a new benefit, and then paying what they think that benefit is worth. Turning inefficiency into personal benefit seems clever to me, not idiotic.

Maybe your emotional response to risk doesn't work that way. If it doesn't, playing the lottery would be idiotic. But if it does, and you're making a reasonable assessment of the entertainment value and the room for entertainment spending in your budget, you're idiotic not to play. Because, to quote the poet, "these things are fun and fun is good."

Because this is tearing me up, let me put it this way:

If there's no hope at all for some in lottery, there's no hope. Period. The hope is mathmatically there. 1 in 14 million, 40 million, one in a billion is still greater than a zero hope.

To ask someone to live utterly without hope is cruel. It's not idiocy, it's pragmatic analysis of chance. Does that sound desperate?

Oh, wait. It is desperate.

Even poor people with average or sub-average IQs or physical disabilities or family problems or addictions or middle age would like to imagine having nice things, space of their own, trips, nice clothes, good teeth, RESPs, no debt. (Teeth, debt, relaxation, housing. The big dreams I know of. Pretty human.) Whatever you think $500/year might buy the really poor, it's not going to buy anything approximating any version of "the good life".

Hence, the lottery tickets. Not. Idiocy.

1/14000000 > 0

Lindsay writes: I just think it's idiotic to enjoy playing the lottery.

That seems like a category error to me. How can it be idiotic to enjoy something?

I don't believe that everyone who plays is stupid. However, if you don't get terrified by the prospect of getting hit by a car on the way to buy your lottery tickets, the emotional thrill you get from buying the ticket is based on deep inconsistency.

I don't see how it is inconsistent, at all. You are presupposing that there is a norm for how one should feel about probabilities. That sounds deeply weird to me. There is a correct and an incorrect way to feel emotions?

You seem to be saying that if someone gets a thrill out of the prospect of winning the lottery, then he should also be terrified of getting hit by a car. Why should that be?

If I were chronically desperate for money, I'd rather buy a real luxury with my pocket money and fantasize for free.

That depends on the value that the person perceives in getting from the small luxury versus the value that he gets from the hope of getting out of the rut he/she is stuck in. For the emotion of hope to work, you have to believe in the possibility.

I mean, there are an infinite number of astronomically unlikely events that might result in me getting rich: unknown rich relative making a bequest, free giveaways from 30 local merchants in a row, Publisher's Clearinghouse, being discovered on the street by a talent agent, finding money on the ground, etc., etc. Any of these fantasies could come true. They're all independent events. I can invent enough of them that might happen to come up with a set of odds comparable to winning the lottery and still spend my real hard-earned money on a movie ticket, or a pizza, or whatever.

Spending your hard-earned money is part of it, I think. It isn't just fantasizing, it is taking an action to make a fantasy possible. Yes, I agree with you that it is a pretty ill-advised step, but it is hard for people to see their way clear to any other path leading to the desired outcome.

If you really understand the odds against you

I disagree completely. The odds have nothing to do with it, really. You are paying the money for the possibility.

Realistically, your life isn't going to be transformed by a lotto ticket. Sure, it's possible, but it's not a level of possibility that you yourself are generally willing to take seriously.

What does it mean to "take it seriously"?

Hence the accusation of (situational, isolated) idiocy.

Sorry, I don't think that accusation is reasonable.

I should say that the capacity to enjoy playing the lottery is predicated on magical thinking. If you were rational, you wouldn't enjoy it. Granted, if you already have that disposition towards magical thinking, then buying a lotto ticket can be a rational choice--provided the fun of playing the lottery plus the expected value of the prize outweighs the price of the ticket and the disappointment of losing. Being inclined to play the lottery doesn't necessarily indicate global irrationality or akrasia because irrational dispositions are often strictly compartmentalized.

Assessments of intelligence or idiocy are intrinsically normative. We describe things as "intelligent" or "wise" when they embody certain cognitive virtues that we deem valuable. I happen to think that a tight link between cognition and emotion is one of the hallmarks of intelligence (or maybe of wisdom). In general think it is valuable to maintain as much coherence as possible between what we judge, what we feel, and what we actually do.

I hope I'll have a chance to explain why I think it's important to cultivate coherence between feelings, judgments, and actions. Maybe I'll post about it later in the week. Basically, I think that freedom depends on having well-ordered desires.

Basically, I think that freedom depends on having well-ordered desires.

Posted by: Lindsay Beyerstein | January 25, 2006 at 05:04 PM

Is there such thing? In larger sense, it wouldn't be called desire anymore if 'ordered'. The very power of desire is the mystique of possible fulfillment outside the realm of the present, an imagined result juxtaposed to current condition of being.(ie. romanticism idea of longing). It's a form of emotion. Desire is not linear and can't be pre-planned. for eg. A lover cannot say to his love one 'I plan to desire you on second Tuesday next month, please arranged your calendar and subsequent meeting' That's an appointment with a hooker.

I would really enjoy that post! It seems to be the crux of much of the disagreement. I'm inclined to think that you may be proposing a global rule when people could actually make significant gains through specialization of emotion/judgment management strategies for specific situations. I also think whatever strategy one proposes needs to have a well-articulated system for dealing with failures, since lapses are inevitable and in fact might be regular.

You can't directly adjust your desires by will, but you can strive to maintain desires that are in line with your rational judgments. For example, I want to feel scared in direct proportion to my intellectual belief about the severity of the threat. I used to be uneasy around harmless spiders. I couldn't just decide not to feel anxious. So, I made a point of holding them until I didn't feel scared anymore. The benefit was two-fold: I saved myself a lifetime of needless spider-related anxiety, and I gained a little extra freedom because I no longer had to factor in spider-discomfort when I planned activities.

We can all think of things that we're attracted to that we know we shouldn't be--I mean things we want that aren't good for us, not necessarily things that would be morally bad to want.

Personally, I'd rather be free of feelings that conflict with my judgments. It would be great to want only what I rationally believe to be good. So, whenever I catch myself wanting something that I judge to be bad or undesirable-for-me-all-things-considered, I try to reassess the desire or ignore it.

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