Three truths about the lottery

The first truth is that the lottery is an effective and successful method of taxation.

The lottery system is well described as a regressive tax on people who are not good at math. And what an effective tax system is has been. Wall Street Journal reports that the U.S. had lottery ticket sales of $277 million yesterday and another $400+ million expected today. Most of that money goes right to the government either in retained revenue or in taxation of the winnings. Remember that the government doesn’t get its tax cut only once, but basically every time that money changes hands in the future. The first undeniable fact it that the lottery is a hugely effective way to raise money for the government.

Second is that people misunderstand or ignore the impact of winning the lottery.

Lottery “winners” are likely to have their lives changed for the worse and can expect a future of an unhappy life, based on observations of past “winners”. In reality, the lottery is better described as a curse on the winners. Thanks to research conducted over the past decade, we now know fr certain that money does not buy happiness. The studies show that happiness peaks at about $75,000 income and does not increase significantly beyond that level as income rises. Yet money-related catastrophes certainly do increase at higher levels of income.

Third is that people have a difficult time getting their head around the concept of large numbers.

We do well visioning ourselves in the center of the universe. We don’t do well thinking of ourselves as insignificant in the story. This difficulty in perception becomes especially apparent when you listen to people talk about the lottery. The lottery triggers us to act in a manner that is not reasonable. This has a lot more to do with the neuroscience of certain emotional triggers than the science of financial management.