Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, August 24, 2005

Let Me Ask Again:
Why Do Maximizing Individuals Buy Lottery Tickets?

A couple who have been married for 63 years (both are nearly 90 years old) and who live together in a retirement home just won $7.5m (tax-free, Canadian) in a lottery. She says she's going to buy a new pair of nylons. He says he might buy a Lincoln, since he has never owned one. [Jack, who sent me this link, was not very enthusiastic about a 90-year-old driving around in a new Lincoln]. But aside from helping out their children, they have no idea what they will do with the money.

According to the Ontario Lottery and Gaming Commission, 74 per cent of millionaire winners share the jackpot with family members and 65 per cent buy a car.
So why buy the tickets? Why not just give your kids two or three bucks a week (or a hundred or two hundred dollars a year) instead of buying a lottery ticket each week? Is it the old Friedman-Savage hypothesis that small losses of income cause very little lost utility but big gains in income create huge gains in utility [i.e., the marginal utility of wealth is increasing]? Maybe.....

But then again maybe not for people who would expect to give away huge chunks of the winnings. For them, the thrill of winning must be worth something. Also, the utility from being able to give a large amount to one's offspring must worth quite a bit. Otherwise, why would they have bought the ticket? Does altruism mean less on an expected value basis when it comes (and is given) in small steady amounts instead of improbable but large amounts?

Only 74% of the big winners share the proceeds with family members??
That absolutely stuns me. What's with the other 26%?
Who Links Here