Although state lotteries average a mere 53-cent return for every $1 spent per ticket, people continue to pour money into them. More troublesome: low-income people put a larger percentage of their incomes toward lottery tickets than wealthier segments.
A new Carnegie Mellon University study sheds light on the reasons why. In the study, published in the July issue of the "Journal of Behavioral Decision Making," participants who were made to feel subjectively poor bought nearly twice as many lottery tickets as a comparison group that was made to feel subjectively more affluent.
The Carnegie Mellon findings point to poverty's central role in people's decisions to buy lottery tickets.
"Some poor people see playing the lottery as their best opportunity for improving their financial situations," said the study's lead author Emily Haisley, a doctoral student in the Department of Organizational Behavior and Theory at Carnegie Mellon's Tepper School of Business. "The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape."
Participants for the study were recruited at Pittsburgh's Greyhound Bus terminal. They were paid $5 for completing a survey that included an item on annual income. The experimental group was asked to provide their income at a scale that began at "less than $100,000" and went up from there. The control group's scale started at "less than $10,000" — leading these respondents to place themselves in the middle or upper tier.
Both groups were then given the opportunity to buy as many as five scratch-off lottery tickets. The experimental group purchased an average of 1.27 lottery tickets, compared with 0.67 tickets bought by the members of the control group.
A second experiment found that indirectly reminding participants everyone has equal chances of winning the lottery actually resulted in an increase in the number of lottery tickets purchased. The group given this reminder purchased 1.31 tickets, compared with 0.54 for the group not given such a reminder.
In the study, the researchers note that lotteries set off a vicious cycle that not only exploits an individual's desires to escape poverty but also directly prevents them from improving upon their financial situations. They recommend that state lottery administrators explore strategies that balance the economic burdens faced by low-income households with the need to maintain important funding streams for state governments.
"State lotteries are popular revenue sources that are unlikely to go away anytime soon," said George Loewenstein, a study co-author and Herbert A. Simon professor of economics and psychology at Carnegie Mellon. "However, it is possible to implement measures that can actually benefit low-income lottery players and lead to fairer outcomes."
Loewenstein noted that one such potential method for addressing income inequality, which has shown promise in other countries, is tying lottery tickets to savings accounts.