Subjective Relative Income and Lottery Ticket Purchases

“Dollars & Dreams”, that’s the catchy tagline of an advertisement of the New York State Lottery and according to them this is an ideal marketing strategy for lotteries.  According to a research the people within the lower income groups spends the major part of their income on purchasing tickets as compared to the wealthier individuals an this theory was devised by the following well known economists like Brinner & Clotfelter, 1975; Clotfelter & Cook, 1987, 1989; Livernois, 1987; Spiro, 1974; Suits, 1977. According to their pattern of theory, the households with an average income of leas than $10000 will spend at last 3% of their income on the lotteries (Clotfelter, Cook, Edell, & Moore, 1999). There are even some studies which states that there is an absolute demand for the lottery ticket slips among the individuals of the low income group and this theory was put forward by several others like Clotfelter et al., 1999; Hansen, Miyazaki, & Sprott, 2000; Hansen, 1995.

Unfortunately there is connection between the income and playing lottery because whenever a poor individual buys a lottery ticket, it is considered to be a “poverty trap.” The poverty trap is regarded as the cycle of inefficient behavior which prevents an individual from the lower income groups from improving their financial situations. There are even the lowest payout rates from any form of legal gambling as well (Clotfelter & Cook, 1989) and thus the rate of return is comparably low as compared to the other assets and so affluent families rarely invest in these kinds of financial instruments. Over the years, from 1964 to 2003, the average expected value was about $.47 for each dollar spent on the tickets. Additionally, it should also be considered that due to poverty there are little margins of error which have a negligible effect on the financial health of a middle class person as compared to that of a profound effect on a poor man (Bertrand et al., 2004).

When someone is restricted from playing the lottery, hardly people will listen to it. What is the reason for this addiction of lottery play is so prevalent among the low income groups? There was a comparison with the other low income groups who consider playing lotteries as a simplest mean for correcting their income status. There was a brief study about impact of the income on the behavior and temperament of an individual.  When there was a brief study about the analyzing the impact of the relative income on the behavior and on the happiness of a person, the following report details were revealed.

It was after few experiments it was found that there is a close knitted association with the lottery play and the income. Inexperienced people often think that the playing lottery is due to cognitive errors or due to ignorance. However, according to experts the people from the low income groups have an affinity in purchasing the lottery ticket in order to improve their economic status. But alas the result of purchasing this paper turns out to be a cruel irony. People within the low income category who spent nearly one dollar on purchasing a ticket earns approximately about $.47. Although the returns are low but the appeal of playing is influenced with the unbearable condition of poverty every time and thus the vicious circle is continued. At that time the action of purchasing and playing the lottery is on the driving seat rather the financial ability of an individual. The cost is not an insubstantial point to consider. It is about 50% of the households with an income less than $25000 plays lottery and the annual per capita expenditure is about $550 (Clotfelter et al.,1999).

What are the results of these findings? Does it indicate that purchasing tickets is irrational? Do they really click? Although according to the findings the preferences of purchasing lottery ticket slips arte not stable or fixed, but the decision certainly gets influenced and so the intention of buying the lotteries cannot be considered as irrational. However, its different in case of compulsive gamblers for whom playing lotteries is only an addictive behavior and there is no irrationality in it. If three people can spend money on movies, cloths, travels, books and in casinos, what’s the harm in “buying a dream?”