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Wednesday, April 22, 2009

Even lottery winners are losers

The Undercover Economist notes that even if you win the lottery, you are likely to lose:

The economists Scott Hankins, Mark Hoekstra and Paige Marta Skiba [looked]... at 35,000 winners of the Florida lottery, almost 2,000 of whom later filed for bankruptcy. The researchers find that lottery winners are more likely to go bankrupt than others – which is not surprising, since many of them don’t win much, and lottery enthusiasts tend to be poor.

More surprising is the discovery that those who won between $50,000 and $150,000 were as likely to have gone bankrupt five years later as those who won less than $10,000. Since the size of a win is random, there should have been no difference between big winners and small winners at the time they bought their ticket. It is remarkable that the additional money was not used to pay off debts.

The lottery is a tax on the mathematically illiterate by a government that should be looking out for the welfare of the poor, not using heavy advertising to promote a con game.