C&B Notes

Psychology at Play in the Lottery

As effective marketers often do, lottery executives use a full arsenal of psychological techniques and tricks to entice consumers to participate in lotteries despite their long odds.

Selling the lottery dream is possible because, paradoxically, the probabilities of winning are so infinitesimal they become irrelevant.  Our brains didn’t evolve to calculate complex odds. In our evolutionary past, the ability to distinguish between a region with a 1 percent or 10 percent chance of being attacked by a predator wouldn’t have offered much of an advantage.  An intuitive and coarse method of categorization, such as “ happen,” “happen sometimes,” “happens most of time,” “always happens,” would have sufficed, explains Jane L. Risen, an associate professor of Behavioral Science at the University of Chicago, Booth School of Business, who studies decision-making.  Despite our advances in reason and mathematics, she says, we still often rely on crude calculations to make decisions, especially quick decisions like buying a lottery ticket.

In the conceptual vacuum created by incomprehensible odds, people are likely to experience magical thinking or superstition, play a hunch, or simply throw reason out the window all together, says George Loewenstein, a professor of economics and psychology at Carnegie Mellon.  “Most of the weird stuff that you see with decision-making and risk happens with small probabilities,” he says.  One reason may be that uncertainty activates a network of brain areas that push us reflexively to find a resolution.  Uncertainty for the brain is a negative state, and so it screams, “‘I don’t know what to do, I don’t know how to act, my organism is at risk,’” says Giorgio Coricelli, an associate professor of economics and psychology at University of Southern California.

* * * * *

How we perceive ourselves in relation to others also shapes our decision to play the lottery — a lever the industry consistently pulls.  A salient example is the “Postcode Lottery” in the Netherlands. Weekly it awards a “Street Prize” to one postal code, the Dutch equivalent of a zip code, chosen at random.  When a postal code (usually about 25 houses on a street) is drawn, everybody who has played the lottery in that code wins about $12,500 or more.  Those living there who neglected to buy a ticket prior to the drawing win nothing — except the chance to watch their neighbors celebrate.  In secondary drawings, many of those who purchased tickets in the winning postcode win BMWs, and are eligible to win as much as $14 million — $7 million for one lucky winner picked from within the winning postcode, and $7 million for their immediate neighbors who bought tickets.

In a 2003 study, researchers in the Departments of Economic and Social Psychology, and Marketing at Tilbrug University in the Netherlands, noted fear of regret played a significantly larger role in the Postcode Lottery than in a regular lottery.  It was not the chance of winning that drove the players to buy tickets, the researchers found, it was the idea that they might be forced to sit on the sidelines contemplating missed opportunity.  The promoters of the postcode lottery seemed well aware of that.  One mailer read: “Sour, that is how it feels when you miss an amount of at least 2 million by just an inch.  Because seeing a multimillion prize fall on your own address, but winning nothing since you did not buy a ticket, that is something that you do not want to experience.”

“The brain is very sensitive to loss — even low probability losses,” explains USC’s Coricelli.  “So if you frame something as a loss, biologically there is a compulsion to avoid it.  We have an aversion to it.”