Do you feel lucky?

Start talking about the lottery, says Dorothy Rowe in The Real Meaning of Money, and pretty soon, you’re talking about magic.

Do you have good luck, or bad luck?

What’s your lucky number?

‘Luck’ is an interesting concept, at least in part because its definition is said to differ based on the philosophical, religious, mystical, and emotional context of the person who uses the word, and the person interpreting it. To some, it’s an ‘uncontrollable force’ (Webster’s). To others, it’s a word we used to describe forces that are only ‘seemingly’ beyond our control (Max Gunther).

In the context of this blog, that word ‘seemingly’ is of utmost importance.

The word ‘luck’ came into English relatively late, probably through the Low German luk, and most likely through the context of gambling, an arena in which we still talk of ‘lady luck’. Importantly, it has three aspects that make it distinct from the more scientific notions of chance or probability:

• Luck can be good or bad.
• Luck can be accident or chance.
• Luck applies to a sentient being.

According to Wikipedia, examples of luck include finding money, winning an event unexpectedly, or being born in a wealthy family. As we can see from these examples, and from the word’s origin, the concept of ‘luck’ is very often related to money.

The very word ‘fortune’ itself means both luck and money. Fortuna, the Roman goddess of fate or luck, whom Ignatius is always lamenting in one of my favourite books, A Confederacy of Dunces, was said to spin a wheel – her Rota Fortunae – at random, visiting windfalls upon some and misfortunes upon others. Think of that the next time you watch Wheel of Fortune, the game show which combines language and money, and gives you the opportunity to ‘buy a vowel’.

How to pick ‘lucky’ numbers

When it comes to the lottery, people have all sorts of ‘magic’ or ‘lucky’ numbers they believe in. Birthdays, or marriage anniversaries. Some people, Rowe says, throw dice or count birds in a tree. ‘No matter how often on television a mathematician might explain that there is no connection between the winning numbers in one draw and the winning numbers in another draw, many people keep a count of how frequently each number is drawn and use this count to predict what the next winning numbers will be… The fact that the chances of choosing the winning numbers are [in many cases, fewer than] one in fourteen million deters very few people.’

These individual forms of ‘magic’ can be compared to what Rowe calls the ‘national magic’ of China, where many foods, for example, are considered lucky because of their names. Raw fish in Chinese is ‘fu cai yusheng‘ which is the same as the pronunciation for ‘prosperity fish’, and the same goes for fat choy seaweed, because the name echoes part of the traditional New Year’s Eve greeting Kung Hei Fat Choy meaning ‘grow in riches’.

The number eight is considered lucky in China, Korea and Japan because it sounds like the word for wealth. Four is considered unlucky in China, and here in Korea, since it sounds like the word for death. The same is true in Japan, and for quite some time, manufacturers avoided producing things in boxes of 4, preferring 3 or 5 instead, since people would avoid this ‘unlucky’ number. During our recent stay in a small town in Japan, I noticed that every parking lot we came across skipped the number 4 for this reason, just as many hotels and hospitals in the west skip 13 to this day. In many places, ‘lucky’ mobile phone numbers or number plates are even sold at a premium.

Language, money, and luck all tied together once again. But as Rowe says, ‘scientific, rational thought requires us to understand that a similarity is not an identity. Powerful though our similies and metaphors might be, the fact that one thing is like another does not mean that they are the same.’ This goes for both individual and cultural ‘lucky’ numbers.

Just how impossible are the odds?

According to Rowe, the company which set up the UK national lottery makes millions out of the inability of most of us to calculate and evaluate probabilities. ‘The Conservative government was delighted with the success of the lottery. Such success was based on the fact that most of the population considered the one chance in 14 million of winning the lottery as good odds, even with the uncertainty of how many people might share the win.’

Rowe frames the issue as not a question of morality or ethics, but around the fact that the lottery is ‘what is known in the trade as a ‘sucker bet”. She says ‘If a casino offered you comparable odds, they’d be closed down.’

The ‘house take’ on the lottery (what’s creamed off the top by the government, in this case, and operating costs) is around HALF. In a game of roulette, it’s about 3%. As Rowe explains, drawing on statistics from Ian Stewart, Professor of Mathematics at the University of Warwick, that means that for every pound you bet on the Lottery, your average ‘winnings’ will be a LOSS of 50p. By contrast, if you played Roulette, you’d end up with an average loss of 3p (this isn’t a suggestion to play Roulette – a loss is still a loss!).

The same is true in the US. The authors of Think Like a Freak point out that the lottery typically pays out just 60% of the take, which is again less  than any casino or racetrack would dare to offer. ‘So for every 100 lottery dollars you “invest” you can expect to lose 40’.

Australia – world’s worst gamblers?

Way back in the 90s, Rowe wrote that gambling was probably the fastest growing industry in Australia, with an annual turnover in 1992 of $31.2 billion, or an enormous $21,400 for every adult citizen. The amount lost by gamblers – $5.25 billion – mostly went to state governments as a ‘semi-invisible tax’. And this is just the gambling we know about, as much is conducted illegally.

Nowadays, I am shocked to report that 80% of Australian adults take part in some form of gambling – the highest rate in the world – and 4% of the adult population plays the ‘pokies’ at least once a week, accounting for 62% of the local gambling spend. State governments receive about 10% of their total revenue from gambling, or around $4.9 billion dollars in 2008/9, but the social cost is estimated at around $4.7 billion annually.

Applied Mathematician at the University of Melbourne Professor Peter Taylor says that in order to win Oz Lotto, you have to choose 7 numbers out of 45. ‘There are, roughly speaking, 45 million ways of doing that; 45,360,620 I think is the exact number’. That is double the population of Australia. So it’s quite likely that, in a given draw, even if everyone in the country bought a ticket, no one will win.

Why do people still gamble then?

‘Bert is on disability and has a wife and five children to support. In one year he spent $2,000 on lottery tickets and his winnings totaled $15. Undaunted, Bert says that his ship is coming in any day’ (Your Money Personality by Kathleen Gurney)

Enormous numbers, like 14 million, are very difficult to conceptualise. You know what 1 person looks like. What 4 people look like. In quite concrete terms. Now go ahead and picture 14 people. Do they seem a little less distinct? Now try for 140.

Maybe you can have a rough guess at what sort of space 140 people would take up, but I doubt you’re seeing individual faces now. And we haven’t even gotten to 1,400 or 14,000 let alone 14 million. That’s 14,000,000. Most of us have enough trouble just remembering how many zeroes there are.

This fascinating video on black holes does an incredible job of demonstrating the difficulty in visualising enormous numbers (it’s worth watching right to the end).

For most of us, a 1 in 100 chance feels very similar to a 1 in 1000 chance, which is similar to a 1 in 10,000 chance and so on. The difference between one in a million and one in 14 million is extremely hard to imagine, even though in reality, the difference is enormous.

In addition, we tend to think about things differently depending on the language that is used to describe them to us. Which financial advisor would you trust more?

• Adviser A, who offers you a 10% chance of failure if you invest your money in their fund,
• or Advisor B, who offers you a 90% chance of success?

Even though the risk is exactly the same, Furnham and Zweig both note that how it is framed can powerfully influence whether we are willing to take the risk. Lottery advertisements never focus on the 99.9…% likelihood of you losing. They are framed so as you make you focus on the potential positive outcome, no matter how unlikely.

These two factors – our difficulty in grappling with enormous numbers, and our focus on the positive outcome – can make the gamble seem worthwhile.

The lottery, Gurney explains, ‘gives everyone an equal chance, there is no ego to be risked in failure, because you only win by chance’. And it is often those who can least afford it, like Bert, who buy lotto tickets or jump on the pokies. The poor, says a Consumer Federation of America and Financial Planning Association Survey, ‘were the most likely to say winning the lottery was the most practical way to gain wealth’. More than a third of those earning less than $25,000 a year thought that winning the lottery was the most practical way to gain wealth, compared to just 9% of those who earn over $75,000. In other words, those who see very little opportunity to advance financially in life through other means hope that Fortuna will favour them in this regard.

Can I improve my luck?

Sort of. Dan Ariely, author of Behavioural Economics Saved My Dog, writes that some people are indeed luckier than others. By this I suspect he means that he uses a definition of luck similar to that of Max Gunther, that luck is something that influences your life seemingly beyond your control. Luckier people, he says, try things more.

Consider someone playing basketball. They shoot 100 times, and miss 50% of the time. But they still get 50 goals. Another person shoots 3 times and has a 100% success rate. But they only get 3 goals. The person who tried more scored more points, even though they didn’t have as high a success rate.

When it comes to the lottery though, the odds are so wildly against you, your chances of winning remain minuscule. Even if you purchase 18 Oz Lotto tickets, your odds are still over 2.5 million to one.

In short, pick your battles wisely. The old adage ‘If at first you don’t succeed, try, try again’ should not be applied to the lottery.

A better way

The authors of Think Like a Freak also point out that nearly 40% of low-income adults consider the lottery their best chance to acquire a large sum of money. They state that Americans are ‘infamously bad at saving money’ with a personal savings rate of about 4%. Even though people know they need to put away money for emergencies, education, and retirement they don’t ‘Because it’s a lot more fun to spend money than to lock it up in a bank!’

While I agree that spending is usually more fun than banking your pay, I think the sad statistic that so many low-income adults believe the lottery is the only chance they have to gain a large sum of money points to a sense of hopelessness and powerlessness. Why bother saving money if you feel you’ll never get anywhere anyway?

The fact is, however, that every little bit really does add up. Even if you only spend $10 on the pokies or the lottery a week, that’s $520 a year. Enough to cover an emergency repair to your hot water service, or a year’s textbooks, or a cheap holiday overseas. Over an adult lifetime, that small amount of money invested at 5% could balloon to almost $200,000. What a boost that would be to your retirement plans.

In spite of not saving as much as they should for emergencies, education or retirement, Think Like a Freak reports that Americans spend around $60 billion annually on lottery tickets. Unfortunately, while a lot of people treat the lottery as an ‘investment’, it’s a terrible one, as pointed out above. But a better option for those who still want the thrill of possibly winning something might be Prize-Linked Savings Account, or a Lottery-Linked Deposit Account, where some of the interest is distributed in a large sum to a winner on a regular basis.

With a normal lottery, if your ticket doesn’t win (which is pretty much always the case) you have lost all of the capital you invested. With a PLSA, your capital is safe – you simply earn a bit less interest than if you had won. It’s a kind of ‘no-loss lottery‘.

Adam Smith famously described the lottery as a ‘tax on ignorance‘. Other formulations put it as a tax on the financially illiterate, or a tax on stupidity. I don’t think that’s quite fair. I’ve never met anyone who plays the lottery who thinks their chances of winning are high. Rather, if you are working a low-paying job and see few real opportunities for advancement, you may figure that no matter how unlikely winning the lottery may be, it still seems more attainable than getting a job that will pay you better, or returns on your savings in the current low-interest rate environment that will make your sacrifices worthwhile.

And a lot of people describe it as just a ‘bit of fun’ (even though I suspect that underneath their words, they really are hoping to strike it rich!).

The fact is, your chances of improving your financial situation are much higher if you bank your money rather than spend it on lottery tickets. And while buying a ticket or having a spin here and there might seem like a cheap way to dream, your imagination doesn’t need to be limited by a piece of paper or the handle of a one-armed bandit.

Do it yourself

Not only are you far, far more likely to grow your money with even a regular savings account than with the lottery, but you are more likely to hold on to it too. Saving teaches you important money management skills which lottery winners often don’t have – many not only blow through all of their winnings, but even go bankrupt!

In fact, if you win the lottery, you are twice as likely as someone who hasn’t to file for bankruptcy. So even if you win, the lottery isn’t all it’s cracked up to be.

If there are no Prize-Linked Savings Accounts available in your region, try creating your own:

• Calculate how much you could save by banking your gambling spend, and what you could do with it. Set a goal.
• Open up a bank account and add money.
• Round up to your ‘lucky numbers’. If you have $100 in the bank and 7 is your lucky number, round it up to $107 or $100.77 or whatever you can afford. When interest is paid in and brings it up to say $107.30, round it up once more.
• Draw up your own plans and fantasies – not the rubbish sold to you in the ads.
• Reward yourself with a small treat when you reach a savings goal. And if you really need the thrill of uncertainty, do a random draw when you reach your goal and give yourself a prize.

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Today’s featured image is of a golden toad statue I spotted outside of a bank in the Gangnam (yes, that Gangnam!) financial district in Seoul, Korea, on our way back from an eSports tournament (at which, I’m pleased to report, no gambling was witnessed or advertised!). According to the statue’s plaque, the toad is a central figure in ancient Korean myth, and has the power of bestowing fortune and prosperity.

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Do you have any ‘lucky’ numbers? What are your thoughts on the odd ‘flutter’? Let me know in the comments below!

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