Last week, an Estonian citizen won €11 million playing the lottery. It is the single biggest lottery win in the history of Estonia and makes the winner one of the wealthiest people in the country at least for a time. At the same time, playing the lottery is still an utterly senseless financial decision, even though it might be rational from an individual's point of view on certain conditions, ERR's Huko Aaspõllu says in Vikerraadio's daily comment.
Taxation of stupidity is one way used to describe playing the lottery. Because the lottery usually draws in poorer people and therefore seemingly not the brightest. For people earning a modest wage, the price of a lottery ticket makes up a bigger part of their income. For example, a colleague's mother apparently buys over €400 worth of lottery tickets every year.
Estonians contributed over €60 million to national gambling operator Eesti Loto last year. Over 400,000 people played the classic lottery in 2019, with €46 worth of lottery tickets bought per resident on average. While these figures fall short of the EU average, it still constitutes money not well spent.
What is the problem? The lucrativeness of games offered by Eesti Loto is low. Of every euro people spend on games, around half goes toward winnings, with the other half spent on game organization and profit. Whereas Eesti Loto is a profitable company that pays the state millions in annual dividend.
Therefore, while the lottery could be seen as a game where a lot of people put money in and a few score big wins, various costs mean half of the pot is lost. The projected win is just half of the money put in. That is an extremely bad deal.
To compare, a game of roulette in a casino has the potential to return 95 cents on the euro. Still a bad deal, but infinitely better than what one gets playing the lottery. Not that I recommend gambling in a casino. All gambling only profits operators.
But why have them then? Why should a state-owned company sell tickets for a game that offers the people a bad deal? Why take a disproportionate amount from the poor? For a total of over €30 million last year. The classic answer is that because people like to contribute, it's better to do it officially and based on regulation instead of allowing underground lotteries to flourish.
Of course, additional revenue for the state budget is always welcome. It is not for nothing that Eesti Loto markets itself by saying how a ticket goes toward education, research, sport, culture and medicine. And it does to an extent. Just like consuming electricity or buying a car.
But if playing the lottery is such a bad deal, why do people do it? The simple conclusion would be that lottery players are foolish and do not realize the unprofitability of their ways. There might be a grain of truth to that – the theory of probability is complicated. Because something has happened before, one feels it could also happen to them. You won't win if you don't play etc.
People might also feel that there exist hidden systems, ways to make the game work for you. That certain combinations can be more successful than others. None of it is true, of course.
But people's poor grasp of the fundamental's is at best half of the answer. While it seems a lot to spend €400 on lottery tickets, things are not quite as simple as that. My colleague's mother also gets back around €100 every year. The rest is used to buy entertainment and dreams of a future with more opportunities. That is also value added.
If she saved €400 a year, she could invest and save up €10,000 in a few decades. But let's be honest, the sum would not produce a qualitative change in her life, especially decades down the line. Yes, having more money is better, but it is not a revolutionary sum.
It can also be looked at another way – those €400 a year would be spent one way or another. If not on lottery tickets, then on other more or less useful things. Spending it also fails do seriously impact her quality of life. Moreover, should the money be needed more urgently elsewhere, the lottery is the first expense people cut. Therefore, if you tell yourself that winning the lottery could exponentially improve your quality of life, no matter how small the chances, it might still be a rational expense. And from there, a sensible investment, considering the added entertainment value. Perhaps even rational.
Editor: Marcus Turovski