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.
It also explains the downside of awesome experiences — or what psychologists call peak experiences. “The good thing about peak experiences is that they make us happy while we are having them, but the bad thing is that they then serve as a standard of comparison for all the experiences that follow,” Harvard psychologist Daniel Gilbert explained. “When researchers looked at lottery winners, they weren’t happier than a control group, but they did take less pleasure in everyday events. The big happiness rush you get when you receive the big check is gone pretty soon, and then when good things happen you find yourself saying, ‘That was nice but it wasn’t like the day I won the lottery.’”
In a well-known 1978 study from Northwestern University, researchers surveyed a small group of major lottery winners, paralyzed accident victims, and a control group. They found two surprising things about lottery winners. Not only were they not happier than the controls, but also they “took significantly less pleasure from a series of mundane events,” which is rather unfortunate, considering that most of life consists of a series of non-extraordinary events. Crucially, it was determined that the lottery winners’ blasé attitude was not due to “preexisting differences between people who buy or do not buy lottery tickets,” suggesting that the lottery victory itself changed their perspective.
What’s going on? It’s all about the psychological power of adaptation and relativity with money. Adaptation: At first, the thrill of becoming millions of dollars richer is, well thrilling, but after a while, the thrill wears off. Relativity: Winning the lottery creates an indelible memory, a comparison point, that makes typical life events seem disappointing and boring. Money can buy happiness, if you know how to spend it, but the incidence of winning the lottery does not, on its own, buy much happiness at all. In the long-term, it can be a net cost to life satisfaction.
So, you didn’t win the lottery? Of course you didn’t. Best news of your life.
*Because it’s not true. Money can buy happiness. It just buys less happiness, per dollar, after you blow by $70,000 or so, and people are better at buying what satisfies their momentary urges than what brings them long-term satisfaction.