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Lotteries: A Waste of Hope

24 Post author: Eliezer_Yudkowsky 13 April 2007 05:36AM

The classic criticism of the lottery is that the people who play are the ones who can least afford to lose; that the lottery is a sink of money, draining wealth from those who most need it.  Some lottery advocates, and even some commentors on this blog, have tried to defend lottery-ticket buying as a rational purchase of fantasy—paying a dollar for a day's worth of pleasant anticipation, imagining yourself as a millionaire.

But consider exactly what this implies.  It would mean that you're occupying your valuable brain with a fantasy whose real probability is nearly zero—a tiny line of likelihood which you, yourself, can do nothing to realize.  The lottery balls will decide your future.  The fantasy is of wealth that arrives without effort—without conscientiousness, learning, charisma, or even patience.

Which makes the lottery another kind of sink: a sink of emotional energy.  It encourages people to invest their dreams, their hopes for a better future, into an infinitesimal probability.  If not for the lottery, maybe they would fantasize about going to technical school, or opening their own business, or getting a promotion at work—things they might be able to actually do, hopes that would make them want to become stronger.  Their dreaming brains might, in the 20th visualization of the pleasant fantasy, notice a way to really do it.  Isn't that what dreams and brains are for?  But how can such reality-limited fare compete with the artificially sweetened prospect of instant wealth—not after herding a dot-com startup through to IPO, but on Tuesday?

Seriously, why can't we just say that buying lottery tickets is stupid?  Human beings are stupid, from time to time—it shouldn't be so surprising a hypothesis.

Unsurprisingly, the human brain doesn't do 64-bit floating-point arithmetic, and it can't devalue the emotional force of a pleasant anticipation by a factor of 0.00000001 without dropping the line of reasoning entirely.  Unsurprisingly, many people don't realize that a numerical calculation of expected utility ought to override or replace their imprecise financial instincts, and instead treat the calculation as merely one argument to be balanced against their pleasant anticipations—an emotionally weak argument, since it's made up of mere squiggles on paper, instead of visions of fabulous wealth.

This seems sufficient to explain the popularity of lotteries.  Why do so many arguers feel impelled to defend this classic form of self-destruction?

The process of overcoming bias requires (1) first noticing the bias, (2) analyzing the bias in detail, (3) deciding that the bias is bad, (4) figuring out a workaround, and then (5) implementing it.  It's unfortunate how many people get through steps 1 and 2 and then bog down in step 3, which by rights should be the easiest of the five.  Biases are lemons, not lemonade, and we shouldn't try to make lemonade out of them—just burn those lemons down.

 

Part of the sequence Challenging the Difficult

Next post: "New Improved Lottery"

Previous post: "Tsuyoku vs. the Egalitarian Instinct"

Comments (67)

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Comment author: Doug_S.2 13 April 2007 09:00:08AM 2 points [-]

It's an uncommon viewpoint, but one could, perhaps, justify the purchasing of lottery tickets as a "donation to charity" of sorts; the money goes to support the activities of the government that runs the lottery, which is (hopefully) going to use that money for good purposes. As a financial investment, though, lottery tickets are generally a bust; I suspect you'd do better playing slot machines at a Las Vegas casino. (There's the complication of rollover jackpots, but they don't have to matter here.)

Speaking of "wealth without effort"... I seem to find myself in the situation of having a strong aversion to the idea of working for a living, and although my current occupation of "mooching off my parents" satisfies my immediate needs, it is not a viable long-term career choice. This leaves me with two basic options.

1) Figure out a feasible strategy that will enable me to avoid needing to work for a living and is not less desirable than working for a living. (Going to graduate school counts as working for a living.) "Win the lottery" is an example of a strategy that fails the feasibility test; "become a prison inmate" would be an example that fails the desirability test. (I am as yet undecided about both the feasibility and desirability of marrying for money.)

2) Figure out a way to want to work for a living. "Become very afraid of the consequences of not working for a living" is one way I've considered accomplishing this, but deliberately inducing a fear of not working that's stronger than my current aversion to work would be, well, unpleasant, scary, and would require experiencing something that actually is worse than working. As I currently regard working for a living as only marginally better than the proverbial fate worse than death, it would take an awful lot to scare me into working.

Any advice? Bear in mind that I am, in fact, a lazy bum with time-inconsistent preferences and little willpower who once deliberately skipped an exam in college to play video games - and doesn't regret it.

Comment author: taryneast 01 December 2010 05:57:32PM 0 points [-]

Have you considered working as a video-game tester :)

Comment author: Luaan 04 September 2012 03:16:53PM 3 points [-]

Don't be silly, that's a terrible job...

Comment author: JSolitude 11 January 2013 03:48:50AM *  1 point [-]

Although I do agree with the arguments of the writer concerning the odds, it is an article clearly written from the viewpoint of someone who belongs to the (upper) middle class, probably academically trained and with a reasonable payed job or peers or family who are financially supportive.

The article lacks to identify the reasons (which ARE rational) of (mostly) lower class income people to play the lottery.

As an excercise in empathy for the writer I do put forward the following scenario's:

Suppose you are stuck in a dead end boring job or no job scenario, living from health care, etc. Although most educated people believe this is a situation they will not encounter in their lifetime, this situation has increasingly become real for an increasing amount of people. One might blame the world economy for this or one might blame the players who have finally been dropped out or have chosen to drop out of the rat race.

May it be to poor education at a younger age, traumatic experiences, simply having the wrong education for the current playfield, being sacked at an older age, having no available finances to support further education, a lack of intelligence or simply spiraling down the road of depression due to a lack of chances or being stuck in a debt one can never recover of in a lifetime... these are all scenario's in which the player on the Lotto actually rationally pays for the soothing dream of a better (financial) future. A future that will not happen if one would not win the lottery.

One might even say playing the Lotto is the same as religion. The one who plays is still a 'believer'. The player plays for hope. Despite the odds being stacked mile high against winning the Jackpot, one believes he or she might win it. It's the same as praying: by praying one hopes to find support in a supernatural being who might forsee in a better future of the believer.

Sure, the person might save some money not playing the Lotto, but these savings will not be able to seriously increase his or her chances for a better future. So, in fact seen from this view point the investment becomes rational: playing the Lotto becomes a very small investment for what might be a very large return on investment..

So what is rational? Playing a negative sum game like the lottery is as such from the above perspective not irrational. It's even very rational if one accepts that money simply will afford at least a higher amount of choices one can make about his future. One could splash out on luxury if one wins the jackpot, one could simply enjoy the financial freedom of being able to choose each day what to do with their life or divide the money with friends or relatives who have drawn (by randomness) the short end of the financial straw.

The article also gives also the impression the writer condemns the personal situation or motivation of people who play the Lotto (being dumb assed, not knowing about their odds, etc.). This is what I would call 'The American Dream' fallacy: if one only studies or works hard enough, one would gain enough financial income one would not feel the need to play the lottery. Reality is very different.

My main point is: simoly stating playing the lottery is not rational because the odds are stacked mile high against the player, is short sighted. It oversees the rational reasons to identify why so many people with a low income play. Their rational reasoning to play the lottery might be justified.

Comment author: Desrtopa 11 January 2013 04:45:28AM 0 points [-]

these are all scenario's in which the player on the Lotto actually rationally pays for the soothing dream of a better (financial) future. A future that will not happen if one would not win the lottery.

There are other ways for a low income person to strike it rich. More people may find it believable that they'll strike it rich in the lottery than, say, write the next big novel, but that doesn't mean that the lottery is their most realistic avenue to wealth.

Comment author: Robin_Hanson2 13 April 2007 10:47:50AM 4 points [-]

The problem is not the claim that lottery tickets are usually a bad investment; the problem is the claim that they are always a bad investment. What if I have a portfolio of dreams requiring varying levels of investment and realism, and I think I want a lottery ticket to be one small part of my portfolio. Can you really be absolutely sure that I am wrong, no matter who I am or what my circumstances?

Comment author: Andrew2 13 April 2007 11:47:34AM 1 point [-]

Robin,

I think the concern is not with people who buy the occasional lottery ticket for fun but with addicts who gamble away a large proportion of their available money.

Comment author: Matthew_C 13 April 2007 11:59:25AM 1 point [-]

I haven't defended people who spend large amounts of money on lottery tickets, clearly that is a disfunctional behavior.

But I have and do defend small-time purchase lottery tickets (at least up to $104 a year, that gets you one powerball ticket for each drawing). If someone wants to daydream about becoming a millionaire for much less money than daydreaming about hollywood stars in movies on a regular basis, I cannot call that a sin.

Comment author: TJIC 13 April 2007 12:58:37PM 2 points [-]

It seems to me that folks have all sort of utility functions that I do not. ...yet, we accept "entertainment" as a legitimate line item in a budget. If you enjoy going to the theater, but do not enjoy playing the lottery, what is the standard by which you can judge someone who has the reverse preferences as behaving stupidly ? If we look at the marginal cost of various entertainments (cable TV, buying hardcover books, etc.), playing the lottery isn't noticeably more expensive than any of the others.

Is there more to the attack on the lottery than mere classism?

More here.

Comment author: Carinthium 23 November 2010 06:06:58AM 0 points [-]

Would somebody really buy a lottery ticket if they were 100% sure they were not going to win?

Comment author: army1987 03 December 2011 09:34:31PM 0 points [-]

I have paid to play video games when I was 100% (minus epsilon) sure I wouldn't win any money, so...

Comment author: JoshuaZ 23 November 2010 06:27:55AM *  4 points [-]

Is there more to the attack on the lottery than mere classism?

Yes. Genuine concern for those not in my class. They are spending a tremendous amount of money on the lottery. Moreover, if you spend a small amount of time talking to people it is clear that they are playing not just for entertainment but often for a misguided understanding of probability. You'll hear people calling it "an investment" or saying that they "need to win sometime" or "eventually I'll win. I've lost so much. Now's my chance" or use religious feelings or sometimes statements by preachers that they are about to get wealth, etc. etc. The lottery is a method by which the upper classes tax the lower classes without the lower classes realizing they are being terribly taxed.

Comment author: Rukasu 13 April 2007 01:18:12PM 0 points [-]

I think you shouldn't just focus on the monetary outcome.

If you play a game for 4$ (winning 1Mio.$ with a probability of 1/500'000) whiches fair value would be 2$. So playing this game is rational if the thrill and the dream of beeing rich (as the non-monetary benefit of the game) is valued more than 2$ (a coup of coffee), which is very likely.

I can think of two biases that might cause an irrational decision for lotteries:

People tend to overweight small probabilities, so they calculate with a too large expected value.

Another problem might be, that people are not able to estimate the utility of a large amount (e.g. 2mio$). They think to be able to live the rest of their life in luxury without working. (But after paying taxes and your first sports car, there's not much left). So they calculate with a wrong (too high) expected utility.

Comment author: Robin_Hanson2 13 April 2007 01:53:35PM 2 points [-]

Andrew, would potatoes chips be a "waste of taste", if some people eat too much of them? Is TV a "waste of time", if some people watch too much? Can we say that there is more of a tendency to buy too many lottery tickets than to do too much of any other thing one can do too much of?

Comment author: Nick_Tarleton 13 April 2007 03:04:12PM 0 points [-]

TJIC, it might come from incomprehension of how playing the lottery actually has any entertainment value. I certainly have a hard time understanding this, as I fantasize about being rich already. Then again, I've never played the lottery so I don't know just how much it would change those fantasies.

Comment author: army1987 01 August 2013 08:01:29PM 0 points [-]

Data point: I do find grabbing a ticket, picking six numbers, submitting the ticket, and waiting to see how many of my numbers get drawn fun enough for me to spend €1 on that once or twice a year.

Comment author: michael_vassar 13 April 2007 03:57:29PM 6 points [-]

I think that the problem with the lottery as entertainment is that it is only entertaining due to your cognitive deficiencies. If a person understood how likely winning actually was, playing wouldn't help them to dream of riches. OTOH, many (most?) people also take pleasure in pure conformity. I suspect that most occasional lottery players are in this class. They enjoy buying the tickets because they know that many other people buy them and therefore that buying lottery tickets is "fun". In most cultures, though possibly not in the contemporary culture of young Americans, this preference seems likely to be stable under reflection.

My feeling that it is appalling is thus simply the result of clashing utility functions and due to the tyrannical term in my utility function that values others valuing what I do and not valuing what I don't independent of any instrumental value to my other goals. Reflection suggests that there is also an opposing "diversity favoring" term in my utility function, and that the activation of these terms is significantly determined by my own drives towards cultural conformity, which when examined activate other terms indirectly and weakly condemning themselves but offering no alternatives other than by pointing weakly at some thus far unexamined region of concept-space. What a mess! The more one looks at one's mind the more miraculous it seems that the whole thing works as well as it does as often as it does.

Anyway, I can satisfy my inner tyrant for now by suggesting that it summon up out-group disdain at purchasers of diamond wedding rings rather than those of lottery tickets. The social externalities of the former behavior are larger, the underlying bias-hack less sophisticated and more overtly malevolent, and the socio-economic status of the condescended group more satisfyingly close to my own.

Comment author: mtraven 13 April 2007 04:46:40PM -2 points [-]

There is a big difference between zero chance of becoming wealthy, and epsilon. Buying a ticket allows your dream of riches to bridge that gap.

I'm not a fan of lotteries, but I don't understand how you can apply the rubric "bias" to their value, since nobody can measure the value of entertainment or distant hope for another. Just measuring the expected cash value is ridiculously reductive.

BTW, for the ultimate in bad reasoning about probabilities, see here.

Comment author: notsonewuser 08 August 2013 07:40:49PM 2 points [-]

I don't understand how you can apply the rubric "bias" to their value.

As I see it, Eliezer is not applying the term "bias" to the value of lotteries, rather, to people's own evaluations of how likely they are to win. These evaluations are scope insensitive, as is the first sentence of your comment, as Eliezer points out in the follow-up post.

It is a separate question whether it is good that people are scope insensitive, or that people play the lottery. Eliezer says no:

If not for the lottery, maybe they would fantasize about going to technical school, or opening their own business, or getting a promotion at work—things they might be able to actually do, hopes that would make them want to become stronger.

Comment author: Eliezer_Yudkowsky 13 April 2007 05:55:57PM 12 points [-]

TJIC wrote: If you’ve got something that costs $1/day and takes 5 minutes of work to deliver more joy to the average person than a lottery ticket, go off and sell it. If you actually sell it, then you’re right. If you either can’t come up with such a product, or can’t succeed in selling it, then you’re wrong, and your product is less pleasing. Either way, don’t call the consumer stupid. His job is just to like what he likes.

Let's get one thing straight: I think people should have a right to be stupid and, if they have that right, the market's going to respond by supplying as much stupidity as can be sold.

The customer is not always right, either factually or morally. Customers do stupid things. If you can exploit it better than anyone else, come up with an even better superstimulus, you may be able to drain even more money from them, but that doesn't make it right.

In this case, the customer is shooting their own foot off emotionally, not just financially. Do you think that our fantasies have no effect on us? Do you think that dreaming has no consequences that depend upon the dream? I doubt I'd be recognizably the same person if my parents hadn't been science-fiction fans. Yes, the lottery fantasy is enjoyable. So is smoking. People will pay for that fantasy. They'll also pay for crack. You may not think that crack should be illegal but that doesn't mean it's a good idea - and yes, I do dare to judge other people's revealed economic preferences. I am a rationalist, not an economist and my goal is to help people make better choices, not just model the ones they do make.

The customer's job is not just to like what he likes. This may be a fine thing to say to undergraduates in an economics course, whose immediate task is to predict and model customers - but what an utterly insane attitude to take toward real life! I have morals and purposes in my life that go beyond being someone's "customer", and so, I suspect, do you.

Comment author: TGGP5 13 April 2007 07:07:16PM 0 points [-]

The customer's job is not just to like what he likes. Generally, if you want to know what your job is, you can ask your employer (who will respond "What have I been paying you for?"). We could take a somewhat-Lockean position that none of us truly own ourselves but have merely been entrusted with the duty of managing ourselves on behalf of God, but I would wager most on this blog do not believe in that "God" fellow, and if he did exist they might still be inclined to ignore his commands they found objectionable. I can only conclude that the customer has no job as customer other than the he/she gives him/herself.

Comment author: Telnar 13 April 2007 07:27:44PM 0 points [-]

Doug S.,

I don't know how to work around the time inconsistency of your preferences, but if you look time consistently at the span of your life with a relatively low discount rate (since you're likely to live many years regardless of what you do now), the best way to minimize the number of years that you will need to work is to accumulate assets in the short run while finding ways to keep your expenses low over both the short and long run.

It's entirely realistic for you to be able to retire after 10 years of work (and perhaps even fewer) if you can keep your expenses to 1/3 of your after-tax salary and get a 7% real return on your savings. I doubt that you're going to be able to work less than that over the long run by delaying work as long as possible -- more likely, you'll enter the work force with debts and have to work many extra years because of them.

Comment author: HalFinney 13 April 2007 11:05:22PM 1 point [-]

Another problem with lotteries is that people tend to overestimate how much happier they will get if they become rich. They confuse the great happiness of becoming rich with the modest happiness of remaining rich. This would make them over-invest in lotteries. It would also make them over-invest in other activities that could lead to wealth, such as starting businesses.

I suspect that this same bias shows up in other areas as well. Losing weight is great but remaining thin is only good. Achieving your life goals is wonderful but having achieved your goals is just OK. These factors conspire to make us try harder to improve our circumstances than is perhaps deserved.

Comment author: Eliezer_Yudkowsky 13 April 2007 11:05:40PM 3 points [-]

If the goal is actually to get epsilon hope, then let there be a lottery with one expected payout every five years, awarded at a Poisson-random time. You buy in once, and lo, at any minute you could receive a phone call saying you're a millionaire! It would still be a malinvestment of dreams but at least the epsilon hope would be financially cheaper. But this just gets us back into the lottery being a scam, not a service.

Comment author: mtraven 13 April 2007 11:44:41PM 3 points [-]

The goal of players may be to get epsilon hope, the goal of lottery providers is obviously to coax as much money out of the hopeful as possible. It's just like any other market in that regard.

Comment author: Andrew2 14 April 2007 12:15:03AM 0 points [-]

Robin,

You ask, "would potatoes chips be a 'waste of taste', if some people eat too much of them? Is TV a "waste of time", if some people watch too much? Can we say that there is more of a tendency to buy too many lottery tickets than to do too much of any other thing one can do too much of?"

I think much of your question is better addressed to the Eliezer, who wrote the original entry with the "waste of hope" phrase. In any case, if someone buys so many lottery tickets that it interferes with other aspects of life (e.g., not being able to pay the rent or whatever), then, yeah, that seems like a problem. Maybe it's not a problem for such a person, but if it was someone I was close to, I'd be worried. Certainly there are people who have problems with food, drugs, maybe TV too, so I wouldn't single out gambling as being uniquely troublesome. I was just distinguishing your vision of the occasional lottery ticket (a small part of one's "portfolio of dreams") from something that's habitual, maybe harmful to one's other goals in life, and maybe not even so much fun.

Comment author: Kevembuangga 14 April 2007 04:32:14AM -3 points [-]

EY : I have morals and purposes in my life that go beyond being someone's "customer", and so, I suspect, do you.

Yes, everybody has "morals and purpose" but why do you pretend that yours should be taken more seriously because you are supposed to be a "rationalist" ? Do you want to ban lotteries because they are a scam and you have some innate right and/or duty to "protect" the lottery players?

Comment author: Richard_Hollerith 14 April 2007 05:18:13PM 3 points [-]

playing this game is rational if the thrill and the dream of beeing rich is valued more than 2$

Rukasu, I believe that having feelings about winning the lottery is an even bigger waste than the $2 because feelings are a scarce resource of the mind which can always be turned to a fruitful plan. In other words, since there are always many ways to get a thrill, always choose a way that can positively impact reality.

Comment author: HalFinney 15 April 2007 01:03:24AM 1 point [-]

I have a personal story related to this - it's not quite the lottery but it's similar.

My sister-in-law and her husband won a million dollars on a TV game show back in the 1980s. (And then they promptly got divorced.) It turned out that the million is paid as $40,000 per year for 25 years. After the divorce she has received $20,000 per year. Ironically if she just lived off her winnings she would be barely above the poverty line, even though the show made a big deal about how she was now a "millionaire". Instead she and her (new) husband both work, and the extra $20,000 a year is a nice addition to their income. It runs out in a couple of years.

Comment author: TobyBartels 16 January 2011 02:16:55AM *  1 point [-]

Had she tried to borrow against her future guaranteed winnings? Maybe she was a millionaire! (Not if it was exactly a million of course, since the time delay must reduce the total to below the nominal amount.)

Comment author: Kevembunagga 15 April 2007 07:56:29AM -1 points [-]

RH : always choose a way that can positively impact reality.

Can you really define what is "positive"? Also, given that no matter what is seen as positive or not entropy always increase the more you "impact" reality the more you consume a potential of some sort. Just to bring question : What is the best balance between personal satisfaction and negentropy expenditure?

Comment author: Richard_Hollerith 15 April 2007 11:46:15AM 1 point [-]

Kevembunagga, I believe every person should do his best to discern what is positive. Yes, I tend to agree that the more you impact reality the more you increase entropy, but the potential entropy of the Universe is truly huge (mostly macrostates being a Universe with a few really massive black holes); it seems to me that time will run out before the ability to keep on increasing entropy will.

Comment author: Kevembuangga 15 April 2007 12:54:29PM -1 points [-]

RH : I believe every person should do his best to discern what is positive.

Of course but the consensus is not obvious.

the potential entropy of the Universe is truly huge

We certainly are not going to exhaust the potential entropy of the whole universe (though some seem intent on that...) but we can locally exhaust all the potential within reach and by this very fact compromise our access to more "distant" potential.

Comment author: Richard_Hollerith 15 April 2007 06:34:14PM 0 points [-]

Indeed, the consensus is not obvious. (Even if it were, it might be wrong: majorities are not always correct.)

Comment author: Richard_Hollerith 15 April 2007 06:42:47PM 0 points [-]

Doug S: you could convince a doctor that you have a physical or mental illness that prevents you from working, and then apply for Supplemental Security Income. If your application is successful, you would recieve a very small but very reliable income (currently about $650 a month) plus health insurance (Medicaid). I assume you are American. I mention this because you seem very young and might not know this already. It is of course unethical to depend on the taxpayer for your living unless you really have no other choice.

Comment author: anonymous3 07 September 2007 12:33:41AM 0 points [-]

Some data on gaming the system (gambling) i.e. not following a value investing model.

- $500B/yr wagered into national lotteries - 10M compulsive gamblers in USA > # of alcoholics - The USA was founded on monies attained from a state\national lottery: The revolution in the 1700's financed by similiar methods: Washington DC was financed by a lottery - From 1790 to 1860 24 of 36 states sponsored government-run lotteries. 1894 it was banned. Reintroduced by State of New Hampshire in 1964, now there are 38 states with state-sponsored lotteries - over 500 casinos across the USA - Poll in 1971: 615 of Americans gamble, wagering $47.4B annually - 1989 71% were wagering $246B - 1992 $330B being wagered - 1995, studies show 95% of Americans gamble: 82% play the lottery: 75% play slot machines: 50% bet on dogs & horses: 44% on cards: 34% on bingo: 26% on sports events: 74% frequent casinos: 89% approved of gambling. - gambling expenditures exceed the amount spent on films, books, amusements, music, entertainment combined. - 1993 people spent $400B legally, $482B in 1994 & over $500B in 1999 - 10% of all money earned by America is thrown away in gambling each year.

CONCLUSION: we are a nation of gamblers. can be speculated that based on the above trends the recent increase in market volume & market volatility is due to this gambling culture & mentality.

Comment author: Tim_Tyler 22 March 2008 09:53:15AM 4 points [-]

Re: Seriously, why can't we just say that buying lottery tickets is stupid?

Buying a lottery ticket is not stupid - under some conditions.

Say you have two cents, and can't afford your train fare home (which is one stop away). If you can gamble those two cents in a game of chance, you may be able to convert them into a whole train fare.

The conditions of being stuffed - unless you have a lot of money - may not be that uncommon: so many people may be inclined to gamble this way.

Comment author: yrff_jebat 29 September 2010 08:45:24PM 0 points [-]

I don't want to conclude that lottery might be rational, but I don't think it is self-evident that the right way for deciding between different probability distributions of utility is to compare the expectation value. We are not living a large number of times, we are living once (and, even if we did, bare summated value would neglect justice).

Comment author: RobinZ 29 September 2010 11:46:17PM 1 point [-]

It's not self-evident, no, but it can be shown under some reasonable assumptions. If you don't play according to expected utility, then you take the risk of being convinced to do something silly, like buying one lottery ticket for a high price, swapping it for a second ticket, and then selling your new ticket for a lower price.

P.S. Welcome to Less Wrong! You may already have read these, but just so you know: the About page and FAQ are both very handy to new users, and the 2010 Welcome Thread is a good place to introduce yourself formally if you so desire.

Comment author: Carinthium 23 November 2010 06:09:58AM -1 points [-]

Isn't the obvious conclusion that it would be best for the world if lotteries were banned in as many countries as possible?

Comment author: David_Gerard 23 November 2010 12:50:40PM -1 points [-]

Only if you don't consider other effects. People like gambling, and making gambling illegal consistently has the effect of driving it underground and funding organised crime. If you don't have something like a lottery, people come up with equivalents themselves. There appears to be a demand for gambling of all sorts; making it illegal doesn't make the demand go away.

Comment author: [deleted] 03 December 2010 12:51:27AM 6 points [-]

you're occupying your valuable brain with a fantasy whose real probability is nearly zero - a tiny line of likelihood which you, yourself, can do nothing to realize.

I have fantasies where I have superpowers and join the X-Men. I fuel these fantasies by reading comic books -- they cost a lot more than a dollar and it takes me much less than a day to read each one, so in this way, fueling my superhero fantasy is even stupider than fueling a millionaire fantasy by buying the occasional lottery ticket. And the likelihood of the superhero fantasy coming true doesn't just approach zero, it actually is zero. Does that make reading comic books a form of self-destruction? If not, how is it different from buying a lottery ticket every so often? What about sexual fantasies about getting with Jamie Bamber or Felicia Day--are these stupid and self-destructive too, or are they just harmless and pleasant indulgences?

The idea you lay out here--that the lottery-ticket fantasy would necessarily crowd out other, more realistic ideas for wealth generation--seems contrary to the way brains actually work. If the lottery-ticket fantasy fires often, wouldn't that strengthen rather than inhibit the areas where related information is stored? (i.e. the daydreams of "going to technical school, or opening their own business, or getting a promotion at work.") Don't related cognitive activities reinforce each other rather than crowd each other out? I'm not talking about addiction--I'll freely admit that's self-destructive--just about the value of engaging in fantasies "whose real probability is nearly zero," or even fantasies where the real probability actually is zero.

I think impossible fantasies are valuable, partially just because they are fun and I value fun, but partially also because I think they can still inspire us even when the correlation to reality is not direct. I think my superhero fantasies have inspired me to think more deeply about morality and about my place in the world. I buy lotto tickets every so often, and I have also read about investment strategies and I make sure my 401k is fully funded. I put MUCH, MUCH more money into index funds than I spend on the lottery, but buying the lottery ticket every so often helps tickle that "wouldn't it be nice to be rich" reward center in my brain, and THAT helps to keep me on track in my savings and investments. These things can be indirect.

Comment author: lymen 16 January 2011 12:39:00AM 4 points [-]

Huh... the thought occurred to me recently.

Just like in the torture versus dust specks post earlier, people might prefer that one person benefits extremely instead of all of them benefiting a small amount. While they might not be the ones to win the lottery, someone else will, and by joining in, they're helping to keep the lottery alive a bit longer.

I admit that I'm relatively new to these concepts so I apologize in advance if my post is a bit scatterbrained or in the wrong post, but it's just a thought.

Just like how people would prefer for 3^^^^3 people to get dust specks in their eyes instead of one person being tortured for 50 years, perhaps they prefer that one person is a millionaire instead of all of them being $1 richer.

Comment author: TobyBartels 16 January 2011 02:21:59AM 0 points [-]

This is rational if utility vs money is concave, which it can easily be for small amounts of money. Tim Tyler touched on that above.

But I'm one who would clearly prefer torture to dust specks, so don't trust me.

Comment author: lymen 16 January 2011 09:39:16PM 1 point [-]

Ooh, right, I didn't see that post, thanks!

Comment author: endoself 16 January 2011 03:29:54AM *  2 points [-]

I admit that I'm relatively new to these concepts so I apologize in advance if my post is a bit scatterbrained or in the wrong post, but it's just a thought.

It's good that you are trying to learn and that you posted. There are misconceptions, which I will proceed to pick apart in extreme detail :), but, if I do this well, you will learn something and come to a deeper understanding of the concepts.

While the lottery would accomplish that preference, it is not the best way to do so. By being a game of chance, lotteries may only be run by the government, so some of the money that would go to the one person goes to the government instead. While people might also prefer that the government has money, they could donate to the government (or to a charity) separately. Also, bundling the two things into one action fixes the ratio between the amount of money given to each. This is neutral if fixed at the desired ratio and of negative utility if fixed at a suboptimal ratio. It would only be considered good to most people if the people who want a lower rate of lottery tax are few enough that they cannot start their own lottery-like system, so they are forced to pay the higher taxes desired by the rest of the ticket buyers in order to play.

Also, the person that benefits is randomly selected. Would it not be preferable to chose someone with above-average need for the money? Even if the ticket buyers would not think so, surely they could think of some criteria that is better than random . In general, the lottery shows no signs of being optimized for this preference. Since you're new here, you may not have read http://lesswrong.com/lw/hu/the_third_alternative/ . I highly recommend it.

Since people would think that buying a lottery ticket that they knew would not be able to win would be ridiculous, we can tell that none of these considerations are what matters. People buy lottery tickets because of the benefit to themselves and, since this is irrational in all but the few cases where utility is concave up in money (and people's participation in the lottery does not depend on how well it conforms to a certain concave up utility function), it is unlikely that the concern for other possible winners, which is minimal on its own, makes it rational for them.

Comment author: lymen 17 January 2011 07:22:26AM 0 points [-]

Ahh, right. Thanks for that point. I forgot you can't have hidden motivations if they're not conscious.

Also, I've read the third alternative article but I'm not really seeing what you were trying to say by posting it.

My original thought was that when you have a choice between torturing a person for fifty years or letting 3^^^^3 people experience a dust speck in the eye, I'd pick the 3^^^^3 people getting the dust speck.

However, from an outsider's standpoint, would you rather give 3^^^^3 people a penny or one person a billion dollars (you're not included in either party). I for one might decide to give the billion dollars because at least it has some value (I'm not really happy about giving 3^^^^3 people one penny each, even if 3^^^^3 pennies is worth a lot more than a billion dollars).

Comment author: endoself 17 January 2011 10:34:32AM 0 points [-]

The point of the third alternative is that an action is not good because it is preferable to some "default action", but because it is preferable to all possible actions that you can think of. If it is rational for some people to buy lottery tickets, it is because it is the best use of their money, not because it is better than saving. If there is a more efficient way to accomplish the same goals, than rational people would not buy lottery tickets.

I for one might decide to give the billion dollars because at least it has some value (I'm not really happy about giving 3^^^^3 people one penny each, even if 3^^^^3 pennies is worth a lot more than a billion dollars).

What percentage of people would have a major life change because of a single extra penny? A tiny fraction, but multiply that number by 3^^^^3 and you can do vastly more good than by giving one person $1 billion.

I'm not quite sure what you mean in your first sentence. People can and do have hidden motivations that they are not consciously aware of depending on the definition of motivation.

Comment author: Will_Sawin 17 January 2011 06:18:23PM 0 points [-]

If a penny has no value, and another penny has no value, and a third penny has no value, ....

then 100 billion pennies must have no value.

Comment author: Desrtopa 17 January 2011 06:43:13PM 0 points [-]

But the utility of a penny is not necessarily the same as one hundredth of the utility of a hundred pennies. If you distribute a great deal of money by giving many people a single penny, you may have disbursed less utility than if you gave a fraction of that money all to one person.

Comment author: Will_Sawin 17 January 2011 07:22:35PM -1 points [-]

If I give one person X amount of money, I can do this N times for N different people, producing on average U(X) utility each time.

If I give N people X/N amount of money, and do this N times for the same N people, I must be producing, on average, the same U(X) of utility, since I have produced the same result with the same number of iterations.

Do you expect:

  1. That the first person I give money to will benefit more than the average person?

or

  1. That the first penny I give people will benefit less than the average penny?

If so, why?

Comment author: Desrtopa 17 January 2011 07:47:51PM 0 points [-]

The second.

It's not controversial that the marginal utility of money decreases when you've got a lot of it. Another dollar is worth less to a millionaire than a beggar. But you also have a lot more than a hundred times as many purchasing options with a dollar than with a penny, so I think it's likely that the utility of money is described by an S curve.

Comment author: Will_Sawin 17 January 2011 08:33:17PM 1 point [-]

This would make sense if everyone started with $0, or an exact round number of dollars, which seems like an odd scenario. However, if that's your assumption, I agree with you.

Comment author: Desrtopa 17 January 2011 08:40:40PM *  2 points [-]

I suppose I incorporated that assumption without really thinking about it. Now that you mention it, that would be a pretty odd situation.

Depending where on the the curve the slope levels off, it might still result in greater utility to give one person a lot of money than to distribute the same amount of money in one cent units to very many people, but if you assume that a majority of the people are already middle class, that's probably not the case.

Comment author: orthonormal 17 January 2011 10:13:26PM 1 point [-]

I think the confusion here is more of a sorites paradox than anything about expected utility. You can't imagine a single extra penny changing anyone's outcome, but you can imagine it for a hundred extra pennies.

I think that's a mistaken intuition; for instance, you could be about to buy something small, realize you're a few cents short, and either cancel the transaction or use the "Take a Penny" jar; but the probabilities of doing either will actually change (for social reasons) depending on whether you're, say, 3, 4 or 5 cents short of the total.

It's rather like the way that being one more second late out the door can either get you to the office at the exact same time, or twenty minutes later, depending on the bus schedule.

Comment author: Blackened 12 July 2012 08:12:07PM 0 points [-]

I'm still not convinced that I shouldn't buy lottery tickets.

Assume a hypothetical situation. There's a lottery right next to where I study/work. Also, I realize how silly it is to actually expect to win the lottery after buying a lottery ticket, so I can't use this as a source of positive emotions, even if I want to. However, buying lottery tickets let me engage in certain social situations, which just barely outweigh the time wasted for them (but not the money) - alternatively, you can instead assume that it takes me 0 seconds to buy a ticket and later to check if I won.

I reckon this question has already been answered, therefore links are a completely acceptable response.

Also, I'd never buy a lottery ticket. It's because of expected value. However, I'm still trying to solidly prove that decision-wise, expected value is equivalent to predicted reality (of course, after uncertainty is taken into account).

Comment author: Vaniver 12 July 2012 08:18:33PM 0 points [-]

The response I would make is that you're not buying a lottery ticket; you're buying a social interaction ticket, and that can be rational. Given the "waste of hope" message, though, hypothetical you should think long and hard about whether that social interaction is positive.

Comment author: Blackened 12 July 2012 08:22:45PM 1 point [-]

However, we assume that the social interaction itself isn't enough to justify my ticket. Let's say it's just a warm greeting and a short small talk with someone I find sympathetic, but probably won't play a decisive role in my future. And I'm buying the ticket, because I rationally know that I might win the lottery (despite that I find it so unlikely that I don't actually expect it). I have only included the social interaction to offset the wasted time.

Comment author: Vaniver 12 July 2012 08:42:55PM 1 point [-]

Ah, now I see what you're trying to get at.

You might be interested in reading about VNM utility maximization and prospect theory.

The first basically says "let's come up with an imaginary score that we give to potential futures, such that that we can do expected value calculations over probabilistic gambles between those potential futures, and the EV calculation will be correct by definition." This is generally recommended as a good way to make decisions (at least, it clarifies what the difficult parts are- but beyond focusing your attention may not make them easier).

The second asks how various descriptive biases coexist, and comes up with a model that has three deviations from risk-neutral VNM but fits how many humans actually behave.

Comment author: buybuydandavis 18 September 2012 08:32:18AM *  0 points [-]

Unsurprisingly, many people don't realize that a numerical calculation of expected utility ought to override or replace their imprecise financial instincts, and instead treat the calculation as merely one argument to be balanced against their pleasant anticipations—

The process of overcoming bias requires (1) first noticing the bias, (2) analyzing the bias in detail, (3) deciding that the bias is bad, (4) figuring out a workaround, and then (5) implementing it.

EY is just wrong in one respect. People enjoy pleasant anticipations. It's perfectly instrumentally rational to weigh that value against the expected financial loss of the lottery ticket. In fact, one could say that the purchase of a lottery ticket is using an epistemically limiting cognitive bias for instrumental gain - the fact that my mind really doesn't feel 1 in 100 million differently than 1 in 10 million or maybe 1 in 10000 allows the anticipated gain to far outstrip the epistemically actual gain, making the bet worthwhile.

Where I do agree with him is the waste of misplaced hope. That hope for the lottery win, and the attending riches leads to actions which provide no incremental real gains. Probably better, if you're going to indulge in epistemically unfounded hopes, to attach them to actions that actually do have some benefit in themselves. Picture yourself wildly overachieving on some goal that you're actually working toward, or would like to work toward. Pick empowering delusions. Whether such delusions are in fact empowering is an empirical question, but I definitely don't see the lottery win delusion as empowering.

Comment author: khafra 18 September 2012 04:47:17PM 0 points [-]

On the other hand, if visualizing winning the lottery does no harm to your actual goals, it may be better than visualizing success at your actual goals.

Comment author: buybuydandavis 18 September 2012 06:53:28PM 0 points [-]

My second point was about opportunity cost - the time you spend on dreams that do no harm is time that could be spent on dreams that provide some benefit.

Comment author: tunesmith 14 December 2012 12:57:04AM 0 points [-]

For powerball to have an Expected Value of 1, the individual take-home jackpot would have to be about $313,124,412 for the lump sum, after taxes. (Which, assuming average state income tax rates, corresponds to an advertised jackpot of roughly $805,000,000 AND assumes the jackpot doesn't have multiple winners, which at that level is pretty unlikely.) Of course, since it's a risky bet, you don't want to blow your whole bankroll on lottery tickets even if the EV is above 1. That's where the Kelly Criterion comes in. According to the easy version of the Kelly Criterion (the hard version gets messy) the calculation is that in order to justify even one $2 ticket, you have to have around $621-Million in the bank. But that assumes you can play the game enough times (multiple rounds) with the same payoff/probability each round to have a good chance of reaching your EV (which would mean that the powerball would have quite the endowment saved up, but whatever). Since powerball jackpot odds are 1/175,223,510, even waiting 175,223,510 /2 weeks (since powerball is drawn twice a week) is 1,684,842 years. And if I did my probability right, if you want to be 99% certain of getting the jackpot, you have to play for 7,758,977 years.

Although, I guess if you're going to live that long, you probably don't need to save your $621-Million ahead of time. Just budget as you go.