Is my dream win worth a lotto punt?

14th August, 2010

Dear Economist,

In Holland we’ve got a “postcode-lottery”: every month, people living in a certain postcode win – provided, of course, that they’ve bought a lottery ticket.

As a rule, I don’t buy lottery tickets. The chances of winning are small. In my view you only pay for the privilege to dream about what you would do with money you are never going to have in real life. And I don’t know about you, but I can dream for free.

But lately I’ve started dreaming (well, it’s more like a nightmare) that my zip-code wins the lottery, so my neighbours become millionaires and I miss out on all the money.

What should I do? Join the herd and start buying tickets every month?

Rob Voorwinden, the Netherlands

Dear Rob,

Being the only pauper in a street full of millionaires does seem a miserable prospect. (A famous survey by the economists Sara Solnick and David Hemenway suggested many Harvard students would rather be the richest pauper than the poorest millionaire.) The post-code lottery pays out sums in tens of thousands, not millions. Still, that makes a difference: the economist Peter Kuhn, with three colleagues, finds that people with neighbours who win the zip-code lottery are much more likely to buy a new car in the next six months. Envy matters.

And while the zip-code format accentuates the lottery’s downside, it also seems to improve the rewards. Standard issue lottery winners tend to become isolated from their community.

I would still advise against buying a ticket, though. First, you’re not psychic: a dream is just a dream. Second, happiness research suggests that lottery winners are not made happy by their victories. But most importantly, your chance of winning remains close to zero. The zip-code format has raised the stakes, but it has not improved the odds.

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