Thursday, January 26, 2006

The Ethics of State Lotteries

Government should not be in the business of exploiting the cognitive deficiencies of its citizens for monetary gain. Right? But state lotteries do just that, as Abbas at 3 Quarks Daily argues. Gambling establishments exploit known human weaknesses in probabilistic reasoning. That's just not how the State ought to treat its citizens. Granted, at least the profits go to charity, but as Majikthise explains, this effectively amounts to a form of regressive taxation:
State lotteries are often justified on the grounds that they raise money for social programs, especially those that target the neediest members of society. However, the poorest members of society tend to spend (and, by design lose) the most on lottery tickets. Some state lottery proceeds fund programs that benefit everyone, not just the poor. Often state lottery money is being systematically redistributed upwards--from lotto players to suburban schools, for example.

So the utilitarian argument doesn't necessarily go through. More good might be achieved by having these poor lottery players instead spend their gambling money on supporting their own families.

But how about the hedonic benefits these individuals receive from their gambling? Presumably they find it fun. (I can't understand why, but never mind that.) So, as Lindsay goes on to suggest, "maybe the fun of playing the lottery combined with the revenue for social programs justifies their existence on the whole." Also, if people are going to waste their money anyway, better to do some good through state lotteries than merely having them enrich private casino operators, I figure. And it would be overly paternalistic to ban all gambling establishments. So, depending on the empirical facts, I think providing a state lottery could, perhaps, be morally permissible.

What seems patently immoral is all the advertising which actively encourages Lotto gambling. (Here in New Zealand we're bombarded with TV ads asking viewers to imagine "what would you do if you won [Lotto] this Saturday?" I imagine other countries are similar.) For the government to spend money trying to manipulate us in this way just seems entirely indefensible. They have lost sight of the public good, and their responsibility to promote it. The government is not a business, and should not be driven by the "profit motive" -- especially if this revenue is coming from those who can least afford to pay it.

So while it might be permissible to provide a state lottery, it seems quite irresponsible for the government to promote it through manipulative advertising. Such actions could be expected to have bad consequences, for the reasons quoted above.

What if the manipulated viewers enjoy it, though? If the Lotto advertisements provide them with an enjoyable (albeit false) hope, are they really being harmed? Well, as in the tricky multicultural cases, I think the answer depends on their counterfactual global preferences, which we can capture most easily through asking what their idealized self would recommend. If fully informed about the falseness of their hope, and the opportunity costs of wasting their money on the lottery, and the way their preferences have been manipulated through advertising - and all the other relevant facts - would these people still want their actual selves to go ahead and gamble? I can't answer that for sure, of course, but it seems plausible to think they would oppose it. And if that's so, then this indicates that the gambling is not really good for them, and that the false "pleasure" they get from it is not worth the costs. And hence the government manipulation is harming them. Bad government!

(As Abbas asks sarcastically, "why doesn't the government also get into the business of hawking Hock? It's legal, after all, and maybe we could raise enough money to start treatment programs for alcoholics. Maybe there would even be enough left over to house the homeless!")


  1. I do not gamble -- for the reasons offered here and in the referenced 3 Quarks Daily post. I used to think that those who gamble were simply foolish.

    However, I actually decided to listen to what those who play lotteries actually said, and I came to see a type of rationality to it.

    Here I am, not playing the lottery. I put my money into stocks, bonds, and other investments.

    However, there is no way that I am going to wake up one morning and suddenly discover that I have $100 million in my account unless I take significant risks -- put all of my money in a company that most think is more likely than not to go bankrupt (thus, driving the price down).

    The lottery player, by making a much smaller investment, has a significantly greater chance of financial independence than I do.

    If we look only at "a $1 lottery ticket is worth, on average, $0.50," then playing the lottery makes no sense.

    However, we are falsely assuming that a 50% chance at $1 is equal to a 1/20 million chance of $10 million.

    Mathematically, these are equal.

    Rationally, with "financial independence" as the payoff in the second case, they are not equal. The latter is worth far more than the former.

  2. I've long thought that "stupid" taxes of this sort are very repellant for just these reasons.

    However let me turn the question around in a fashion where they suddenly don't seem so problematic: "sin" taxes like huge taxes on cigarettes. Isn't that equally exploiting the cognitive deficiencies of its citizens for gain? In the US many states really depend upon alcohol and tobacco taxes.

    The justification (and this is where the difference appears) is that these are sold as ways of reducing consumption of such products. I've no idea if it makes a significant dent. I'd probably accept it more if all the money went into prevention programs, which it rarely does. But I think it unarguable that these taxes are extremely regressive. (I definitely see more smokers among the poor than the rich, for instance - even ignoring cost as a percentage of income)

    I wonder if I could accept government sponsored gambling if there was more of a fixed up front fee associated with it as a way of preventing people from gambling. i.e. raise the cost of that lottery ticket. Put an entry fee on blackjack.

  3. Alonzo - in light of the diminishing marginal utility of money, I would draw the very opposite conclusion. (And if you add up the amount spent on lottery tickets over a lifetime, the resulting loss might be quite significant, especially for someone of modest means.)

    Clark - I hadn't thought of that interesting parallel before. I guess those "sin" taxes are indeed terribly regressive. If they can be justified, it must be due to the disincentive effects, as you note.

  4. Gambling involves a significant gain in choice IF it is fair - in as far as it allows one to trade effectively ones first dollar for ones second dollar - one could argue the first dollar is ALWAYS worth more but I suggest this is not true and that therefore it should be possible to gamble fairly (assuming people are at least fairly rational for the moment). For example I have some coins in my pocket I would happily trade them for an rational bet for making 1 milion dollars. There are quite a few reasons why I might do that some are a little cynical in that I see there being a safety net and others less so in that I would value the lack of worry having a certain minimum amount of money would create somthign no amount less than that can do (a tipping point).

    There is a problem with this when the organization starts giving to charity - this mixes two things
    1) gambling
    2) charity

    Do you know what charities you donate to when you buy a ticket? who does? who cares enough to keep a close eye on it? and if it happens to donate to a stupid inefficient charity who cares?
    And collectively all the peopel buying lotto loose.

    A better bet would be a bonus bond of course. So there are fair bets in a sense but I suggest a beting system that has the immediate reaction of the lotto.

    > asking viewers to imagine "what would you do if you won [Lotto] this Saturday?"

    Maybe they should be forced to state the expected return in every add - e.g "you will make 40 cents on the dollar"

    Anyway - this is presumably making us like our millionth dollar more than our 50,000th dollar. If it happens that they DO make us like that more then it changes a non paternalistic hedonistic utilitarians calculations fundimentally.


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