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Author: LorenCobb Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 445017  
Subject: Re: A Tax on playing the lottery? Date: 11/1/2012 1:05 PM
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rj: I thought playing the lottery was a tax on the stupid? (Or at least the innumerate.)

The idea that playing the lottery might be less than fully "rational" is a myth perpetuated by economists and social theorists who really should know better. They make this claim based on the (erroneous) dictum that the most rational choice is always the one with the highest expected payoff. They simply observe that all lotteries have a negative expected payoff, and conclude (again, erroneously) that playing the lottery must be irrational -- because not playing has a higher expected payoff.

If you put yourself in the shoes of a person living in grinding poverty, without a ghost of a chance of escape, you can begin to see why it might be "rational" to play a lottery from time to time -- it offers an avenue of escape from poverty, at a very low cost. Since you have no other avenue of escape, just one lottery ticket with a non-zero probability of a monstrous payoff represents hope. Do you want to spend a dollar and have a little bit of hope, or save the dollar and be hopeless? For many people, this requires no thought at all.

It's possible -- actually easy -- to express the above idea in a mathematical framework. In other words, the problem here is just a lack of imagination on the part of some economists when it comes to creating theories of rationality.

A deeper analysis reveals that there is no universal theory of rationality. It seems that every such theory has problems and paradoxes. It is quite likely true that there is in fact no such thing: the entire concept is a chimera.

Loren
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