Friday, November 30, 2012

The Economic Case Against Winning a $500 Million Lottery

So you didn't win the lottery? That's fantastic news, says behavioral economics.

You'll probably find nothing in classical economics that tells you winning $500 million is bad. No sentence, no theory, no lesson. Nada. Money is a pretty good thing. You can use it to buy stuff. Stuff you want. Stuff that will bring happiness to you and the people you love. You don't need an econometrics class to know that sounds alright.

Here's the problem. A fuller understanding of motivation and money reveals a different picture of lottery winners. This isn't your old-fashioned "Money can't buy happiness" lesson.* This is your slightly newer "Winning the lottery can make you miserable" lesson.

To start, there's nothing wrong with buying a lottery ticket, so long as you understand what you're buying. When you buy a ticket in a $500 million lottery, your chances of winning are, roughly, one divided by infinity. You aren't buying a chance to win, because there is really no probability that you will win. You are buying the right to fantasize about winning. And that's okay.

It's winning that can get you in trouble.

Happiness is relative. This fact (or theory, really, since happiness studies is a fluid science) explains all sorts of surprising observations, such as why poor countries are as happy as rich countries; why Americans aren't more joyous than we were 40 years ago, despite considerably more money and better technology; and why, after some time, paraplegics and people who go blind in middle-age report average levels of life satisfaction. Read more....

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