Monday, February 27, 2012

What are you buying for that lottery ticket?

­Most economists, conservative and liberal, are in complete agreement that lotteries are a bad gamble.  You pay $2 for the ticket and your expected return is $1 on average.  Yes there is the powerball $200 million prize.  But then there are millions of people who get nothing.  Or who get a free ticket that gets them nothing.  And yet somehow, lotteries are the biggest form of gambling in the country.  What gives?

It turns out, that you are getting more than the expected financial return for your $2.  You have three days to dream.  You can look at the ticket and imagine what you would do if you won the $200 million.  After all, it IS possible.  And since most people can’t really perceive the difference between 1 in 300 million odds or 1 in a million, it doesn’t seem like such a bad gamble.  Look at how jubilant those winners are when they are showcased on the news.  They are not fake reality show millionaires.  They are scrubs just like you who really really won.  And they can live the high life for the rest of their life. 

That dream is what is worth the $2.  You pay $9 to go to a movie (plus popcorn) and that only puts you in dreamland for a few hours.  The lottery is a much better deal than that.  Lotteries are a form of entertainment, not a form of income.  Seen from that perspective, it doesn’t sound so bad.

But there is an even better solution (thanks to Freakonomics for the tip).  One of the big problems with lotteries is that most of the customers are low-income people who spend more than they can really afford.  OK, they get a great dream.  But then they can’t make the rent.  This sucks.

So imagine something called a no-lose lottery.  When you put your money in a savings account at a bank, it earns interest.  Right now that is very low but it is usually a couple of percent.  Let’s say we take a smidge of the interest from everyone’s bank account.  That would be millions.  Just as much as in a powerball ticket.  And we could turn that money into prizes.  So instead of using your rent money to buy the dream, you get the dream for a smidge of your savings that you don’t even notice is missing.  It would also encourage people to save.

The administrative costs would be minimal.  The bank could send you your lottery numbers every month in your statement.  No extra mailing (email or snail) and a computer could automatically generate the numbers.  They could still do the drawings on the local news and publish them in the local papers.  And you could have posters up in the bank to promote the program. Just as much hype if you want.

We can debate over whether it should be part of every savings account (like a tax) or an opt-in for certain accounts.  We can debate over whether to have one big $200 million prize or have 200 $1 million prizes.  We can debate how to define a smidge and how much can be spent on administrative fees.  But I would guess that whatever we decide, liberal, conservative or otherwise, it is better than the lottery.

Motivated Reasoning and Federalism

As you know, motivated reasoning is my primary interest.  It is what I do my research in, teach in, consult in, blog about, and dream about.  I find ways to apply it to just about everything.   But I realized that there is a huge area where just about everyone uses motivated reasoning and it impacts our lives more than we know.  It is in policy.  Federalism v localism.  That sounds boring, but really it is not.

We have many beliefs.  We want to tax the rich or leave them free to create jobs.  We want same sex marriage to be legal or leave it to the churches.  We want to legalize marijuana, decriminalize it, or keep it the way it is. And on and on.  In some of these cases, we have strong logical arguments for or against.  But in many of these cases, what we think is a strong logical argument is being skewed by motivated reasoning with regard to the federalist/localist dimension.

Here is what I mean.  Let’s say that an otherwise liberally minded person doesn’t believe in same sex marriage.  Don’t worry about why for now – this kind of belief exists.  But they can’t admit it, even to themselves, that they are against it because it causes cognitive dissonance to themselves and social embarrassment in public.  It goes against their more general belief to support minority rights.  So instead of being against it, they can say they just don’t think the government should be involved.  This way, they can vote against it without admitting why.  It sounds better (to themselves and their friends) that they don’t think the government should force an otherwise religious belief on the population.  I see this happening a lot in the current debate about mandating insurance coverage of birth control.  I see people who want to be against it, don’t know why, so they become against the “mandate” on religious institutions.  And they can still feel liberal.

Same thing with going the other way.  Let’s say an otherwise conservatively minded person does believe in same sex marriage.  But they can’t admit it to themselves because it causes cognitive dissonance to themselves and social embarrassment in public.  So instead of being for it, they can say they just don’t think government should be involved.  So they can vote for it without admitting why.  It sounds better (to themselves and their friends) that they don’t think government should be involved in defining such a private issue like marriage.  Again, I see it in the birth control debate.  They want to be for it, but don’t know why, so they become for liberty of the employee who follows a different religion.  And they can still feel conservative.

I bring this up today because I would suggest that you make a list of all your policy positions and see where you have been saying they should be regulated.  If you see inconsistencies, it just might be motivated reasoning showing its all too common face.  I found some in mine.  I need to think deeply to see if I really think they should be regulated at different levels or if I am just thinking that to make myself feel better about having inconsistent beliefs.