
Lottery-Like Prizes Coax Savings. What’s the Risk in Expanding Them? - gumby
https://www.nytimes.com/2018/12/21/business/lotteries-savings-accounts.html
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analog31
>>> While the state lotteries in the United States don’t achieve those
particular goals, they already do some good. Roughly 40 percent of the lottery
income is used to finance education, environmental protection and other
causes.

That's dubious, because money is fungible. In my home state, lottery money
"for education" was matched by a reduction in money for education from the
state's general fund.

~~~
giarc
That's such a good point, the lottery revenues aren't "increasing", they are
"replacing" funding.

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rusbus
The premise of the article is that by making the interest on savings accounts
a lottery (lower base interest rate with the chance for large lump payouts)
seems to appeal to people while simultaneously reducing their lottery
spending.

At least in theory, this seems like a great idea. Potentially ripe for abuse,
just like a lot of lottery systems (eg. the McDonald's Monopoly conspiracy
where employees hoarded the winning tickets).

Hopefully the law can be changed enough to start a larger sized trial.

~~~
zozbot123
You could make this pay out _better_ than actuarially-fair prizes, by having
the savings fund invest some of the lottery jackpot in call options on a
diversified portfolio. That way, the fund would be able to pay out _more_
prizes when the markets are doing well, while still keeping a "baseline" level
of draws at all other times. The reason why this would provide _better-than-
fair_ payouts is that these options are effectively on the capital markets
line, i.e. investing in them is essentially _removing_ risk that other market
participants would otherwise have to face!

~~~
bovine3dom
So kind of like [https://www.nsandi.com/premium-
bonds](https://www.nsandi.com/premium-bonds) ?

Those are government bonds, but it's not far off your idea.

Edit: for clarity, the effective rate paid does vary over time according to
interest rates, which usually have some relation to how well the markets are
doing.

~~~
zozbot123
> interest rates, which usually have some relation to how well the markets are
> doing.

Uh, maybe? There is a positive correlation of sorts, but it's nothing to write
home about. It doesn't seem like this product was _designed_ with any
attention to the potential of better-than-fair payouts.

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darkpuma
> _" But protecting people by ending lotteries isn’t a practical solution: If
> anything, gambling and state-run lotteries are growing enterprises in the
> United States and many other countries."_

What are the practical problems with banning state-run lotteries as they
currently exist? The article doesn't explain this assertion. Is it just
realpoltik pessimism over the ability to change the status quo and get state
governments to give up an unethical source of revenue? Or is this a standard
_" prohibition creates criminal opportunity"_ issue?

The idea of gamified savings accounts seems very interesting. Legalizing
gamified savings accounts while also banning traditional state-run lotteries
seems like a decent idea to me.

~~~
hristov
"Or is this a standard "prohibition creates criminal opportunity" issue?"

This is exactly it. And it is not something that should be dismissed, it has
pretty much been proven correct. In the US, before state run lotteries were
present and popular, there were criminal run "numbers games" which were quite
similar to lotteries but with much worse payout ratios and where the criminals
that ran them often refused to pay for various reasons.

In the Scorcesse classic movie "Mean Streets" one of the storylines is about a
kid that wins one of those numbers games but the person that runs the game
refuses to pay him because he is of a mixed race.

Numbers games are very rare in the US nowadays and when present are only
present in poor immigrant communities that do not know much about the state
run lotteries. The state run lotteries did a pretty good job of getting rid of
the numbers games and thus depriving organized crime of a source of revenue
while providing better odds of success for lottery players and also taking in
money for the government and thus saving taxpayer money.

The original lottery idea was also reasonably effective at keeping individual
betting volumes low. They did this by making sure that each ticket was
relatively cheap and required relatively large amount of work to determine the
winner. Thus it was hard for someone to buy many tickets. Unfortunately, this
is something that has slowly been eroding as lottery systems try to get more
revenue and encourage compulsive buying.

So no I do not think state lotteries should be banned but it may be a good
idea to change the rules for advertising or the games themselves to discourage
individuals from blowing too much money on them.

~~~
warent
This is a very useful perspective on the positives of lotteries. I've always
found them to be bogus, borderline theft. But when you consider the fact that
it mitigates--almost entirely removing--more shady versions of the game, it
makes lotteries seem more like a necessary evil for the time being.

However, that's not to say that the government couldn't do a better job of
educating the public on it. Lotteries are definitely aggrandized with all the
bells and whistles to make people feel like they have a real shot at winning
which I would argue could draw in people who wouldn't have played--lottery,
numbers games, or otherwise.

~~~
tareqak
Couldn’t the government do the same for other kinds of vice (drugs,
prostitution)? They could permit activities to the level where you get a power
law kind of trade-off between consumption and risk from consumption so as to
monitor and educate participants over a long period of time (more than 80/20
for behaviour with more detrimental outcomes). You also get the benefit to
study the behaviour and figure out how it works in order to have truly
effective solutions through repeated experiments etc.

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jpollock
A savings account with prize interest is still a tax on uneducated people.

The "educated" person will look at the data, realize that they are paying for
that prize with a lower interest rate, and switch to a different product.

I know I did - I realized that the savings account paid a lower interest rate
to compensate for the prize and decided to not play.

Example from New Zealand:
[http://www.bonusbonds.co.nz/](http://www.bonusbonds.co.nz/)

They don't have any guaranteed interest!

Analysis: [https://www.moneyhub.co.nz/bonus-
bonds.html](https://www.moneyhub.co.nz/bonus-bonds.html)

Term Deposit Rate from same bank:

[https://www.depositrates.co.nz/by-
provider/6/anz](https://www.depositrates.co.nz/by-provider/6/anz)

~~~
froindt
>A savings account with prize interest is still a tax on uneducated people.

But people aren't completely rational. Playing the lottery isn't something a
completely rational person would do.

In general, people with lower incomes have less education. Even highly
educated people often have little understanding of the basics of managing
money.

Given that it's unlikely lotteries will go away anytime soon, I think it's
okay to offer "harm reduction" methods. Even if only 10% of people
participated, if they began to move up socioeconomically, it may help others
develop better habits.

------
apo
If increasing the savings rate were actually a priority, then it can be
achieved easily. Raise interest rates.

The Fed and its nearly decade long war on savers gave those with money to save
essentially negative return on their investment.

It should be no wonder that savers decided to walk.

~~~
danieltillett
The desire to get the little person to save more is telling me massive
inflation is coming.

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sys_64738
Any prize is still taxable income in the USA. That absurdity needs to be
removed before this can make inroads. E.g. if you win a car but are very poor
then you might reject the car as you can't afford to pay the sales tax on it.
I've seen this before.

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prostoalex
Views on savings tend to swing extreme in the US, just 13 years ago Bernanke
warned against "the savings glut" and the negative effects it was having on US
economy.

[https://www.federalreserve.gov/boarddocs/speeches/2005/20050...](https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/)

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amelius
Can't we have a lottery that, as a prize, provides basic income? Then at least
we can use it to do experiments with the concept of UBI.

~~~
luhn
a) They already do. You're given a choice between a single payout or regular
installments over a period of many years (i.e. basic income). b) There's no
shortage of BI experiments, both past and ongoing.
[https://www.businessinsider.com/basic-income-experiments-
in-...](https://www.businessinsider.com/basic-income-experiments-
in-2017-2017-1/)
[https://en.wikipedia.org/wiki/Basic_income#Examples_of_basic...](https://en.wikipedia.org/wiki/Basic_income#Examples_of_basic_income_and_related_systems)

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beefeater
The fact that stupid people spend a lot of money on the lottery is a feature,
not a bug. It allows us to extract much needed tax revenue from them without
them even realizing it. Because of this, they're happier with government than
they would be if they were taxed directly. This reduces the risk of extremist
(communist, socialist, nazi, etc) politicians sweeping into power by riding
the discontent of the masses.

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nyc_pizzadev
"...something that truly benefits ticket-buyers: by nudging people to save
more or, even, to engage in safer sex."

Whoa. I guess poor people should not be allowed to participate in the joys of
family and child raising. How did this get by editorial?

Edit: at the end of the article, the author links sex to health. I apologize,
I didn't make it that far. Would have been better to say heath education in
the earlier statement...

~~~
hirsin
Because that's not what it's saying? Safer sex means not getting HIV in this
context. Similarly, not having unintended children would also be a benefit
that does not say anything about forbidding people from raising children if
they so choose.

~~~
nyc_pizzadev
Ya, sorry, I jumped to that conclusion based on an early statement.

