Here’s something wildly counterintuitive about the lottery: humans are more likely to want to play as the odds of losing INCREASE. We don’t care if the odds of winning are one in 3 million or one in 300 million. We don’t think about that. We focus on the difference between a $3 million jackpot and a $300 million jackpot.
When lottery commissioners realized this, they made it more difficult to win. In 1978 The New York Lotto launched with 1-in-3.8-million odds. Today the odds of winning are 1 in 45 million.
Smaller states were at a disadvantage, so they banded together to create multistate lotteries, which eventually led to the creation of Powerball and Mega Millions, which are now played everywhere that the lottery is legal.
The outcomes of these pooled lotteries are truly astronomical both as it relates to the prizes won and the odds required to win them. In July of 2022, two people overcame the one-in-302-million odds of winning a $1.34 billion Mega Millions jackpot.
All of this excitement leads to really poor decisions that unfortunately disproportionately impact lower income lotto players. Wealthy players buy fewer tickets than the poor except when jackpots approach ten figures. According to an article in the New Yorker, the percentage of annual income spent on the lottery jumps drastically as income declines:
- Players making more than $50K: 1% of annual income
- Players making less than $30K: 13% of annual income
“That means someone making twenty-seven thousand dollars loses some thirty-five hundred dollars to the lottery every year. To put that number in context, nearly sixty per cent of Americans have less than a thousand dollars in savings.”
If this is so terrible for personal finances, why has it been perpetuated? The article cites two reasons:
- States became convinced that the lotto provided additional funding, which was viewed favorably when compared against raising taxes or cutting services.
- Scientific Games, Inc. (SGI), a lottery-ticket manufacturer was in the business of making lotteries popular.
Item 1 is highly questionable, but I want to focus on the second bullet point because I find it fascinating. In the late 70s, SGI started hiring lobbyists and advertising agencies to persuade voters across the US to pass lottery initiatives. “By 1982, the company had printed its five-billionth ticket and was producing a million more every hour.”
In a game that consistently has a negative impact on the personal finances of most of its players, with the benefits for the states that sponsor it in question, it would appear the most consistent beneficiary is the company selling the tickets.