In the1994 Hollywood rom-com, It Could Happen to You, New York City police officer Charlie (Nicholas Cage) promises waitress Yvonne (Bridget Fonda) that in lieu of a tip, he will give her half of his lottery prize if he wins. The next day, Charlie wins $4 million. Movies like this feed the idea that winning the lottery isn’t so unlikely.
Real life, though, is different. For example, according to Lottery USA, the odds of winning a jackpot in its Mega Millions game are one in 303 million, and those for PowerBall are about one in 292 million – which means that only one in about 300 million ticket-buyers are expected to win the jackpot. The situation in other countries is similar.
Of course, if I buy all the possible tickets in a lottery, I would definitely win all the prizes. The total prize money, however, would be much less than the total price of all the tickets I had bought because the people running the lottery charge an administrative fee and include their profits.
About two decades ago, when I was visiting the University of Montreal in Canada, I was surprised to learn that one of my research collaborators, a professor, used to purchase lottery tickets meticulously every week. I reminded him that being a statistician he should have known very well that the “expectation” in the lottery is negative. He smiled and told me that this was the only way by which he could dream to be a millionaire someday.
‘A perfect tax’
He used to spend about $100 per month as his “dream tax”. I found the concept of “dream tax” quite interesting – but not so much that I would have started purchasing lottery tickets as well. Subsequently, I discovered that it’s a phrase George Washington had coined: “A lottery is the perfect tax… laid only upon the willing.”
The lottery is a profitable business around the world. In many countries, the government – either federal or local – organises lotteries to generate funds for social welfare, or even for funding sports. A part of the cost of establishing Harvard, Columbia, or Yale universities was arranged by conducting lotteries.
Sri Lanka organised lottery in 2005 to raise money for the rehabilitation of people affected by the 2004. During this pandemic, several lotteries aroundt the world have announced that they will help people handle the Covid-19 crisis as well.
According to the 2017 Global Compendium of the World Lottery Association, a total of $293.4 billion was obtained by selling lottery tickets worldwide in that year. While 71% of that was spent for prize money and costs, the remaining 29% has been used for social welfare programmes.
But, why do individuals buy lottery tickets? Certainly, nothing is more intriguing than how people reckon with uncertainty. However, more than just a probabilistic game, it is a psychological one. Is there any economic need or insecurity behind it? Do they treat it only as a “dream” and not as“greed”? Or, does the “greed” of winning money without any toil or skill dominate the “dream”, which they do not even realise?
An equal chance
In their 2008 research article entitled Subjective relative income and lottery ticket purchases published in the journal Behavioral Decision Making, a team of Carnegie-Mellon behavioural economists – Emily Haisley, Romel Mostafa and George Loewenstein – through two experiments conducted with low‐income participants. They tried to explain why despite a return of only $0.53 on the dollar, state lotteries in the United States are extremely popular, especially among the poor, who play the most but can least afford to.
“Participants were more likely to purchase lottery tickets when they were primed to perceive that their own income was low relative to an implicit standard,” the article said. Purchasing tickets was also prompted by the fact that “when they considered situations in which rich people or poor people receive advantages...everyone has an equal chance of winning the lottery”.
However, even many well-to-do people buy lottery tickets regularly. Are all of them doing that in the spirit of paying “dream tax”? There are people who find the root of this mentality within a classic event of the Mahabharata.
According to them, we are possibly carrying the genetic inheritance of playing dice – the game of chance rooted in the gambling match between Yudhisthira and Shakuni in Sabha Parva. There are, however, many arguments postulating and countering this theory.
In between, the culture of lotteries has spread in many corners of the society – be it in allocating housing among applicants or to admit children in schools. The 2010 Hollywood movie The Lottery depicts the crisis in public education, where four children enter a high-stakes lottery. If they win, they can attend one of the best schools in New York.
The lottery is played indirectly as well – “chance games” have become an integral part of many TV shows or product advertisements.
Some states running lotteries in India Rs 5,300 crore in 2017. About 80% of that money was earned by only two states – Kerala and West Bengal. When the Jayalalitha government banned the lottery business in Tamil Nadu in 2003, the market was reported to be worth ₹15,000 crore.
Today, lakhs of people routinely buy lottery tickets across the country. These people are up to paying a “dream tax”. But perhaps, our society should construct economic structures that offers them brighter, more realistic dreams instead.
Atanu Biswas is Professor of statistics at the Indian Statistical Institute, Kolkata.