On a recent trip to Wisconsin we chanced upon a television commercial for the Wisconsin Lottery. It was insidious, offensive, and probably effective.
The commercial was for a crossword scratch game, the kind where you can be an instant winner. It showed a nerdy guy doing a regular crossword puzzle, and then turning his skill to the lottery version. He was a winner.
Here is a look at the card:
If one looks at the back of the card, there is a different message. The overall return on this "investment" is 3:7 to 1 against the player.
| Overall Odds | 1:3.7 |
| Odds | $5 1:7 $10 1:16 $15 1:61 $20 1:51 $25 1:50 $50 1:90 $100 1:1,500 $500 1:44,445 $5,000 1:600,000 $50,000 1:600,000 |
We purchased a ticket and got an "oh, so close" experience. When we inquired about the game, the vendor asked, "How many?" He was surprised that we took only one.
There are several themes here:
- The "investment" appeals to someone who needs/wants to hit it big;
- There is an illusion of skill in the game;
- There is a poor perception of the actual chances of victory.
- The game itself is designed to nurture the worst instincts of the player.
Other Lottery Examples
There is an occasional case where a lottery has a positive expectancy because of a carried-over jackpot. We remember when a group of bored CBOE traders sent a clerk to O'Hare with instructions to fly to Pittsburgh. He went to a nearby lottery vendor and bought tickets for hours before flying back. No luck, but at least the play had edge, even with the cost of the plane ticket.
Normally the lottery is a straightforward losing proposition. Despite this, various promoters offer lottery strategies and analysis of the "tendencies" in various state lotteries. The vendors of strategies use the terminology of successful players in other sports, e.g., they "wheel" a key number.
Over twenty years ago there was a publication called Gambling Times. Most of the authors wrote about games where it was possible to achieve a positive expectancy -- sports betting, blackjack, horse racing, and poker. There was some treatment of craps, where you could get a lot of play while losing little edge by following "best" strategy.
And then there was the lottery "expert". She was something of a joke with the other authors, since everyone knew that her methods had no edge. The magazine ran her columns because they were popular, not because they provided any "investment edge."
There was one quotation, going something like this ----
"In the Pennsylvania Lottery, certain numbers like to come up with their near neighbors."
Wow! What an incredibly dumb statement! This was long before Fooled by Randomness, a book we liked so much that we bought multiple copies as gifts for clients. Anyone who understood odds knew that this claim was completely bogus. It was an early example of the fact that people can see patterns in anything.
Whatever one thinks about the methodology, this was a successful business model. She now has testimonials from many winning players, used as evidence for her newest work. No one knows how much was invested to generate those winners since losers do not write letters.
Lessons?
It is our expectation to draw upon this article, showing the similarities with many other investment decisions and the sort of information provided in support.
While we have strong feelings about the public policy implications of states exploiting the poor for additional gambling revenues, that is not our focus. We write about investments and about how people can get the information they need.
Meanwhile, we invite reader suggestions for their own similar experiences.
