TIME psychology

Would Winning the Lottery Solve All Your Problems?

Lottery balls
Getty Images

Eric Barker writes Barking Up the Wrong Tree.

Via the documentary Lucky:

Every year Americans spend $7 billion on movie tickets, $16 billion on sporting events, $24 billion on books… and $62 billion on lottery tickets. More than half of all American adults play the lottery making it, by far, the most popular form of paid entertainment in the country.

Odds you believe your best shot at getting rich is winning the lottery: 1 in 5.

Odds you will actually hit the jackpot in a Powerball lottery: 1 in 195,249,054.

People have a lot of irrational beliefs when it comes to the lottery. Many believe if they give a lottery ticket away it’s more likely to win.

What if you educate people about the statistics showing the odds are stacked against them when they gamble? Doesn’t change their behavior one bit.

And if you believe that winning the lottery will solve all your problems? You might be a little irrational too.

Are lottery winners happier than paralyzed accident victims?

Yes… but not by as much as you’d guess.

Some time after winning their money, lottery winners weren’t all that much happier than people who hadn’t won — and accident victims weren’t anywhere as unhappy as the researchers had assumed.

Shouldn’t lottery winners be ecstatic and paralyzed accident victims be miserable? No.

What the authors of the study found was that:

1) Much of happiness exists outside of objective life circumstances. Attitude and perspective mean a lot more than actual events.

2) We’re prone to a contrast effect. Events in our lives don’t have set values; they’re compared to other events. Winning the lottery is such a big deal it actually makes every other good thing in the winner’s life less enjoyable.

3) We’re also prone to habituation. Simply put, we can get accustomed to nearly anything, no matter how good or bad. After time, a wheelchair doesn’t seem so bad — and a million dollars doesn’t seem as good.

But you still want to be rich, right?

There’s no denying it: Yes, you would probably be happier if you were rich… but not by much. Past about 75K a year, money doesn’t bring very much extra happiness.

Think about this for a second:

Would you be happier of you were a billionaire or if you were Amish?

Correct answer: they’re both equally happy.

And this:

Do you think you’d be happier homeless in Fresno, California or homeless in Calcutta, India?

Correct answer: Calcutta, hands down.

Via Flourish: A Visionary New Understanding of Happiness and Well-being:

The downtrodden of Calcutta are far happier than you’d think, given their circumstances. How can these people possibly be happy?

The problem isn’t with them, it’s with us. We’re falling prey to what’s called a “focusing illusion.” All we’re thinking about is money and living standards and not the other factors that are often more responsible for happiness than we give them credit for: religion/meaning, family, marriage and friends.

Can you tell me the best way to play the lottery or not, Eric?

So back to the lottery. Can research give you any help on the best way to play the lottery? Actually, yes.

Buy your tickets as early as possible.

Because what you’re really buying is a chance to dream.

And the smartest thing to do is to prolong that enjoyment as much as possible.

This piece originally appeared on Barking Up the Wrong Tree.

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MONEY stocks

How Investors Are Like Powerball Players

Lottery winners
Many investors dare to dream, like these winners of the $448 million Powerball jackpot. Donna Svennevik—ABC via Getty Images

It's easy to be dazzled by stocks with hot streaks. Here's why you should ignore that noise.

Almost everyone knows that playing the lottery is a terrible idea as a matter of simple math, and yet state-run lottery ticket sales run close to $70 billion per year. Why do we waste our money this way? “All you need is a dollar and a dream,” is how the old New York lotto ads put it — and of course that’s what we’re really buying when we play: a dream.

Investors as a group are supposed to be more rational than lottery players. (For one thing, there’s a lot more than a dollar at stake.) But now along comes some new evidence — in case you needed it — that that isn’t always the case. A new research paper by business professors Turan Bali, Stephen Brown, Scott Murray, and Yi Tang finds that “lottery-like” stocks tend to be overpriced, delivering lower future returns.

What are lottery stocks? Ones with unusually high average returns for their five best days in a given month — regardless of how they perform during the other 25 or so days. The idea seems to be that a handful of high return days have the same effect as news stories about big lottery winners. Investors see them and dare to dream.

This effect, the researchers say, explains one of the long-standing puzzles in finance. There’s some evidence that stocks with a high “beta” — a kind of volatility, that is — do worse than you’d expect given their level of risk. And low volatility stocks do better than you’d expect.

As I’ve written about recently, a group at the hedge-fund firm AQR argues that Warren Buffett’s tilt to lower-volatility stocks is one reason he’s done so extraordinarily well. The AQR group says low-volatility stocks have an edge because investors who want to take on more risk don’t have easy access to additional borrowed money. So when they want to goose their returns, they instead tend to crowd into riskier stocks. That drives up the valuations on shares of those high­fliers, giving cheaper, low-beta stocks an edge.

Bali and company have a more behavioral explanation. Many high-volatility stocks are also lottery stocks. So perhaps what’s going on is that investors simply see hot returns — never mind they’re short-term gains — and then chase after them. Because, hey, you never know.

TIME Lottery

$425 Million Powerball Jackpot Winner Comes Forward

B. Raymond Buxton wound up claiming a lump sum of $242 million before taxes on a Powerball ticket he bought in February for just $2, a return of more than 12 billion percent

A California man came forward Tuesday to claim February’s $425 million Powerball jackpot, lottery officials said.

B. Raymond Buxton, the sole winner of the Feb. 19 jackpot, claimed the prize in Sacramento at the California Lottery headquarters, the Associated Press reports.

Buxton purchased the winning ticket for $2 at a Chevron station in the city of Milpitas, near San Jose.

The retiree opted to claim his winnings as a lump sum payment, which will be about $242 million before tax. Opting for a lump sum results in a slightly lesser payout.

The $425 million prize is one of the largest in the game’s history. The Powerball jackpot reached a record-setting $590.5 million last May.

[Associated Press]

TIME Lottery

Luckiest Couple Ever Wins Lottery 3 Times in a Month

What may just be the luckiest couple ever won the lottery three times in March— and one of their winnings was the result of the combination 6-6-6-6.

Calvin and Zatera Spencer of Portsmouth, Va. claimed their first $1 million prize on March 12 after winning a Powerball drawing. Next, Calvin’s lucky sixes resulted in a $50,000 prize from the Virginia Pick 4 lottery on March 26. One day later, the Spencers won $1 million from a Virginia Lottery Scratcher ticket.

The couple took home $681,000, before taxes, from that last win alone. “We’re not finished yet,” said the couple after redeeming their last prize, USA Today reports.

[USA Today]

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