The joy of lottery play: evidence from a field experiment. Martijn J. Burger, Martijn Hendriks, Emma Pleeging & Jan C. van Ours. Experimental Economics, February 27 2020. https://link.springer.com/article/10.1007/s10683-020-09649-9
Abstract: Buying lottery tickets is not a rational investment from a financial point of view. Yet, the majority of people participate at least once a year in a lottery. We conducted a field experiment to increase understanding of lottery participation. Using representative data for the Netherlands, we find that lottery participation increased the happiness of participants before the draw. Winning a small prize had no effect on happiness. Our results indicate that people may not only care about the outcomes of the lottery, but also enjoy the game. Accordingly, we conclude that lottery participation has a utility value in itself and part of the utility of a lottery ticket is consumed before the draw.
Discussion and conclusions
From
a financial point of view buying a lottery ticket is not a rational
investment as the average ex-post value of a ticket is just over half
the price of that ticket. Nevertheless, many people participate in
lotteries. There are two popular explanations in the economics
literature for this: (1) low cost opportunities to improve one’s
financial position if there are few opportunities to do this otherwise
and (2) prospect theory according to which people overweight the small
probability of winning a lottery. The first explanation suggests that
participation would be predominantly among lower social classes which is
not the case since lottery play takes place across the whole income
distribution. The second explanation is at odds with the finding that
most lottery participants have quite accurate expectations about the
probability to win a prize. Although there is some empirical support for
both the Friedman–Savage theory and prospect theory, these theories
only partly explain people’s propensity to gamble.
We studied lottery participation using a field experiment in which some participants of a regular household survey received a state lottery ticket for free, while other participants had no ticket or only a purchased ticket, or both a free and a purchased ticket. This allows us to investigate to what extent participating in a lottery increases momentary happiness. If so, this supports a third explanation of lottery participation, i.e. people deriving non-monetary utility from participating in a lottery play. This could be because of the hope of winning a large prize, the fun and excitement of the game, or because of social bonding activities when playing the lottery together with family or friends.
In our field experiment, momentary happiness is measured at three moments in time, i.e. before free lottery tickets are issued, after providing some individuals with a free lottery ticket but before the draw, and after the draw. We study the change in momentary happiness between the first two moments to investigate whether playing in the lottery increases momentary happiness, regardless of whether the ticket was bought or free. We also study the change in momentary happiness between the first and third moment to investigate to what extent winning a small lottery prize matters.
Our main finding is that participants in a lottery derive procedural utility from playing the game. This is irrespective of whether the lottery ticket was bought or received for free due to the experiment. On a scale from 1 to 10, participating in a lottery increases momentary happiness with 0.25–0.40 (approximately 1/5–1/3 standard deviation increase). These results may be driven by the hope and expectations about financial gains, the thrill of a potential win, and social bonding when playing as a group. However, the procedural utility that players derive from winning a small prize is limited. In sum, we conclude that lottery participation seems to be at least partly driven by the joy of lottery play, i.e. lottery participants may be hoping for financial gains but gamble for fun. More generally, our research shows the importance of taking in procedural utility in modeling decisions of consumers since consumers do not only care about outcomes, but also about the process. Accordingly and in line with previous work, seemingly irrational decisions such as lottery play could be considered rational from the perspective of procedural utility (see also Benz 2005).
It is important to note that our results are related to the probability of winning which is about 50% in the State Lottery. For lotteries with a smaller winning probability the magnitude of the happiness effects are smaller. It is also important to note that our article has focused on the short-term positive impact on lottery play through procedural utility and does not pay attention to the potential negative long-term effects of lottery play, especially in the case of problem and pathological gambling (Lorenz 1990). In this regard, lottery gambling has been associated with psychological, social, and economic problems. Hence, procedural utility may induce sub-optimal decision-making in the long-run. At the same time, the number of problem lottery gamblers among the population is relatively small (Hendriks et al. 1997) and the overall long-term effects of lottery play on overall well-being or experienced quality of life seem to be limited (Burger et al. 2016). However, more research on the consequences of lottery play are needed to examine the long-term effects of lottery play.
We studied lottery participation using a field experiment in which some participants of a regular household survey received a state lottery ticket for free, while other participants had no ticket or only a purchased ticket, or both a free and a purchased ticket. This allows us to investigate to what extent participating in a lottery increases momentary happiness. If so, this supports a third explanation of lottery participation, i.e. people deriving non-monetary utility from participating in a lottery play. This could be because of the hope of winning a large prize, the fun and excitement of the game, or because of social bonding activities when playing the lottery together with family or friends.
In our field experiment, momentary happiness is measured at three moments in time, i.e. before free lottery tickets are issued, after providing some individuals with a free lottery ticket but before the draw, and after the draw. We study the change in momentary happiness between the first two moments to investigate whether playing in the lottery increases momentary happiness, regardless of whether the ticket was bought or free. We also study the change in momentary happiness between the first and third moment to investigate to what extent winning a small lottery prize matters.
Our main finding is that participants in a lottery derive procedural utility from playing the game. This is irrespective of whether the lottery ticket was bought or received for free due to the experiment. On a scale from 1 to 10, participating in a lottery increases momentary happiness with 0.25–0.40 (approximately 1/5–1/3 standard deviation increase). These results may be driven by the hope and expectations about financial gains, the thrill of a potential win, and social bonding when playing as a group. However, the procedural utility that players derive from winning a small prize is limited. In sum, we conclude that lottery participation seems to be at least partly driven by the joy of lottery play, i.e. lottery participants may be hoping for financial gains but gamble for fun. More generally, our research shows the importance of taking in procedural utility in modeling decisions of consumers since consumers do not only care about outcomes, but also about the process. Accordingly and in line with previous work, seemingly irrational decisions such as lottery play could be considered rational from the perspective of procedural utility (see also Benz 2005).
It is important to note that our results are related to the probability of winning which is about 50% in the State Lottery. For lotteries with a smaller winning probability the magnitude of the happiness effects are smaller. It is also important to note that our article has focused on the short-term positive impact on lottery play through procedural utility and does not pay attention to the potential negative long-term effects of lottery play, especially in the case of problem and pathological gambling (Lorenz 1990). In this regard, lottery gambling has been associated with psychological, social, and economic problems. Hence, procedural utility may induce sub-optimal decision-making in the long-run. At the same time, the number of problem lottery gamblers among the population is relatively small (Hendriks et al. 1997) and the overall long-term effects of lottery play on overall well-being or experienced quality of life seem to be limited (Burger et al. 2016). However, more research on the consequences of lottery play are needed to examine the long-term effects of lottery play.
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