Lottery as speculation, lottery as consumption good

I am interested to hear your thoughts on the numbers racket, particularly state-run examples, but also the phenomenon in general. I found a blog post that is interesting,

http://www.felixsalmon.com/2007/03/why-playing-the-lottery-can-be-a-rational-thing-to-do/

he argues that lottery tickets are a consumer good, and that what is purchased is an increase in the odds that one's consumptive fantasies will be fulfilled (by lottery winnings).

What if I won the lottery and spent my winnings on building some type of good with the intention of selling it to other firms?  And, well, playing the lottery is gambling.

The difference between investment, speculation, and gambling is the type of thought that occurs in the mind of the acting human. Its speculation if you have some understanding of the odds and attempt to leverage that somehow.

Investing is putting money into something where the odds of a return are in your favor.

Gambling is putting your money where the odds of a return are decidedly against you.

The only moral form of gambling is gambling as entertainment with money not needed to live and meet your responsibilities.

"odds" are an opinion, the creation of odds is a cognitive task. My statement holds.

insurance is gambling, but i think it has more purpose than entertainment. buying a product with hopes of never cashing in, because to cash in means something bad happend, is something i find moral. the purpose of insurence is to help meet responsibilities when thing's go wrong. insurance is different from a card game, but it's still a fact that a insurance company can only survive if it has odds in it's favor as it cannot pay out more than it takes in and survive.

i dont think the fantasy of winning the lottery is very rational, or at least that people are more rational if they use their imagination to gain wealth in other ways such as win win situations. the lotterly can be addiction and that does not seem like a rational form of entertainment, as supposed to a game of skill

if a person thinks the money is going to a good cause, then i think that can be win win as they are happy win or lose the money

The plaintext web address in the OP contains a quote that suggests lottery tickets are a consumption good. As cheap as they are, they surely cant be worse than a soda or bag of chips.

i don't consider buying soda a rational thing to do. i dont think soda should be abolished, just that it's a healthy  and rational choice to not drink soda.

i can agree with lottery being a consumption good, but there are many consumption goods i feel are harmful such as the soda.

if the lottery came with something such as a austrian economics book, then it could be better value.

Malachi:

"odds" are an opinion, the creation of odds is a cognitive task. My statement holds.

Odds are not mere opinion; they can be mathematically determined. Thus they are objective facets of reality.

I think what you mean is that the importance someone places on the particular odds, that is their value system and attitude towards odds, is subjective. Some, who know the odds, see no value in trying to beat them. Some value the excitement over the loss of money and real wealth it will bring them. Some want a slice of hope, to turn $1 in to hundreds of millions, as in the state lotteries.

 

cab21:

insurance is gambling

Insurance is not gambling, it's risk transference.

cab21:

the purpose of insurence is to help meet responsibilities when thing's go wrong.

Exactly.

cab21:

but it's still a fact that a insurance company can only survive if it has odds in it's favor as it cannot pay out more than it takes in and survive.

The insurance company accepts the risk from the individual because it's in a position to do so. By covering the population at large, it knows that not everyone is going to die of an accident or w/e. Large percentages live out their lives. Most buildings don't catch fire. Most cars aren't totaled they're junked at the end of their life. Etc.

cab21:

i dont think the fantasy of winning the lottery is very rational

Not at the odds given in most lotteries.

cab21:

i don't consider buying soda a rational thing to do. i dont think soda should be abolished, just that it's a healthy  and rational choice to not drink soda.

How about diet soda? As far as your body is concerned, it's equivalent to water with some electrolytes in it.

cab21:

if the lottery came with something such as a austrian economics book, then it could be better value.

Lol, classic. We need a warning label on every lottery ticket, like the warning labels on cigarettes. "Warning: your odds of winning are lower than your chances of being struck by lighting three times in the exact same spot and then being eaten by a great white shark a day later!"

Strictly speaking there are odds and then there are odds. Odds are an opinion of the true odds. But we are basically on the same page.

one side bets of a event happening, while the other side bets on it not happening. beting is involved in risk transferance.

if gambling is simply the odds being against a person profiting, and investing being the odds for a person profiting, then the buyer gambles and the seller invests with calculated odds

if we add intent to the definition, then we can call the risk tranferance not gambling one the buyer as the intend is not to profit, it can be investment on the seller side as the intent is to profit by not having the event happen.

so that would make gamlbing as a bet gainst the odds for the sake of profit.

the both are based on payouts from chance events

 

How about diet soda? As far as your body is concerned, it's equivalent to water with some electrolytes in it.

forgot to mention, I dont agree with this at all. Artificial sweeteners are horrible for you.

cab21:

one side bets of a event happening, while the other side bets on it not happening. beting is involved in risk transferance.

Let's be clear here. In most gambling situations, there's no personal risk either for the person betting or the person taking the bet in the same way that insurance is protection against personal loss. If I bet on a horse, I'm not transferring risk, and I'm actually assuming a risk of loss, the loss of the sum I bet on a horse. The house too is taking a risk, but a much smaller one, since the odds are stacked in its favor.

cab21:

if gambling is simply the odds being against a person profiting, and investing being the odds for a person profiting, then the buyer gambles and the seller invests with calculated odds

Essentially the house is not gambling when it offers you odds, true, because the odds are in the favor of the house. It's more akin to a profit situation. I wouldn't call it investing because that implies putting money into something, and the house is not putting money into a venture. Rather it's more like a traditional vendor scenario where, say, a restaurant produces a product and skims a profit off sales minus costs. So too the house in a gambling scenario produces a place of business, sells chips and emotional rollercoasters in the form of slot machines and the win/loss possibility inherent in all gambling, which is where the entertainment value comes from, and receives a cut of the money being spent there by customers.

The house is taking a risk, just as any business is a risky endeavor, but it's not gambling.

 

Risk aversion and subjective value of money comes into play with the lottery when compared to other forms of gambling (odds are against you).  Winning the lottery for most people would be a huge lifestyle change... a change they have only dreamed of.  Going from 50,000 dollars a year salary to having hundreds of millions is a huge difference.

However, spending 1 to 5 dollars a week on playing the lottery will not change that persons lifestyle AT ALL.  Making 50,000 a year is virtually the same (in terms of lifestyle) as making 49,750 dollars a year (5 dollars a week on lottery tickets less).  But by buying the lottery tickets, they are giving themselves to value of dreaming of a lifestyle and also an actual tangible chance of winning it (as small is it may be).

Are the numbers in your favor? No.  But for most people that play the lottery, they are giving up nothing (in temrs of lifestyle change) to win a whole hell of a lot (also in terms of lifestyle change).

With that said, state lotteries are mostly played by the poor who cannot afford to play the game.  They are gambling with money that they need for necessities, and many of them choose lottery tickets over food for their family.  The NAACP is attempting to shut down a state lottery with this theory in the forefront.

The difference between investment, speculation, and gambling is the type of thought that occurs in the mind of the acting human. Its speculation if you have some understanding of the odds and attempt to leverage that somehow.

There is no fundamental difference between investing and speculation, and in fact when you invest you speculate.  An investment is necessarily an action that will flower over time, meaning that the decision is always made with some degree of uncertainty.  The difference with gambling is here: with investment, there is no means of knowing the "probability" that it will be successful.  With gambling, the probability is known and, short of cheating, you have no control over it.  But, there's no law that says that all lottery winnings must be consumed at the second they're transferred to winner, which is what we mean by consumption (present consumption).  Indeed, a lottery winner could decide to use the money towards some productive venture, or she could decide to deposit most of the money into the bank (which is an investment, and that money can then be used to fund entrepreuers' investments).

jvhockey01:

by buying the lottery tickets, they are giving themselves to value of dreaming of a lifestyle and also an actual tangible chance of winning it (as small is it may be).

So, basically, the lottery is the modern opium of the people :P

Yes it is consumption.

Think of betting markets. You have pro and semi-pro betors making a living out of it or trying to figure out how to make a living out of it. They are very much like stock market operators.

But then you also have the majority of people who bet just to give themselves more of a stake in a certain game, that is they bet for fun really. Well that is exactly the same as playing the lottery, only the chance of you winning is greater and the size of the winnings smaller.

 

Essentially the house is not gambling when it offers you odds, true, because the odds are in the favor of the house.

What you're saying is that betting on value is not gambling. So by your logic in any one bet one party is not gambling. Also to you then pro betors can not be gamblers.

Are the numbers in your favor? No.

That's right, but as you say isn's the end of story. There is no value in purely mathematical terms, however, when you have no money 5 million or 50 million dollars sound about the same. Either way you can make sure you no longer have to work a single day of your life and will have every material thing you ever wanted up til now.

So there is no value in playing the lottery in the sense that a 1 dollar ticket only buys you a 1 in a 50 million shot of winning 10 million dollars.

There may be value, however, in paying the lottery in the sense that a 1 dollar ticket buys you a 1 in a 50 million shot of no longer having to work a single day of your life and having every material thing you ever wanted up til now.

With that said, state lotteries are mostly played by the poor who cannot afford to play the game.  They are gambling with money that they need for necessities, and many of them choose lottery tickets over food for their family.  The NAACP is attempting to shut down a state lottery with this theory in the forefront.

So what is this NAACP? Association for Patronising and Being the Bosses of Poor People?

Lol, classic. We need a warning label on every lottery ticket, like the warning labels on cigarettes. "Warning: your odds of winning are lower than your chances of being struck by lighting three times in the exact same spot and then being eaten by a great white shark a day later!"

I think people know that already. Reminding them in their face like that could only serve to ruin a part of their day and only spoilsports would want to do it. The only real function it could serve would be to make the people who put it there feel superior about themselves in the sense that those dumb people who play the lottery need their warnnings and their lectures.

i was thinking of the idea of a book promotion where buyers of the book could submit to a contest and gain rewards. that way everyone who submits a servay or something could get a prize and some winners could get a bigger prize.

warning lables are ok if consumers demand warning lables. i'm sure there would be collectables or morbid pictures sold as novalty, another reason consumers can demand lables is in food safty such as expiration dates. i'd much rather purchase food with a expiration date on it then without, that would scare the hell out of me to see a meat market selling meat without being able to give me information about the meat.

Marko:

Essentially the house is not gambling when it offers you odds, true, because the odds are in the favor of the house.

What you're saying is that betting on value is not gambling. So by your logic in any one bet one party is not gambling. Also to you then pro betors can not be gamblers.

If by pro betors, you mean people who have special knowledge that tips the odds in their favor, such as in horse racing, then you might count these people as speculators. Problem is, they have no way of knowing the true weight of their knowledge and its effect on future outcomes, not any more than what the house knows and sets its odds at. Horses known to be very good also get very bad odds.

Perhaps you mean expert poker players who can make a living on poker. These people are engaged in arbitraging their skill at poker. They're taking a risk that may or may not be in their favor and is constantly fluctuating according to the skill of their opponent. If they can consistently win, good for them.

There are actually professionals who compete at multiple forms of high-risk financial activity, they can deduct lottery tickets from their taxes as a business expense. Money can be made consistently at both poker and blackjack, and probably others as well.

Malachi:

Money can be made consistently at both poker and blackjack, and probably others as well.

Sure, but these are games where you're not living or dying on straight odds, as you can bluff your opponent and read them. That's a form of social arbitrage. If everyone's cards were always visible it'd be straight betting and straight odds you couldn't get around. Many games are straight odds like that with no room for any applied skill or special knowledge. Whenver you have applied skill there's an element of arbitrage which can tip the odds in your favor.

Either way it's still the form of betting. You're betting you're skilled enough to win consistently enough to earn a return.