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How MIT Students Won $8M in the Massachusetts Lottery (2012) (time.com)
247 points by onuryavuz on June 8, 2015 | hide | past | favorite | 204 comments



This isn't the first time someone has been able to turn lottery odds in their favor. A woman named Joan Ginther, who has a PhD in Statistics from Stanford, won more than $15 million from a Texas lottery scratch card based game [1]. Though she has never spoken and exactly how she did it remains a mystery, her odds of winning the number of times she did as a random buyer of scratch cards were 1 in 18 septillion and should occur approximately once every quadrillion years. Here's another case, where a geologist named Mohan Srivastava cracked several different lottery scratch ticket games [2]. He warned lottery officials, who did....nothing.

[1] http://www.forbes.com/sites/kiriblakeley/2011/07/21/meet-the...

[2] http://www.wired.com/2011/01/ff_lottery/


Though she has never spoken and exactly how she did it remains a mystery...

The Philadelphia Inquirer figured it out:

http://www.philly.com/philly/news/nation_world/Lotterys_luck...

TL;DR scratch tickets aren't random, rather they are intentionally spaced out. The Texas lottery releases spacing info to the public. Once you have a regular lottery annuity (the first one was luck) you can spend vast sums on lottery tickets and write off your losses, so the public subsidizes your lottery purchases.


I saw that article and didn't link to it because it was rife with ridiculous statements and mathematically dubious speculation. They certainly didn't "figure it out".

One particular gem: they said that a game returning 66.9% of the money spent on it has a "remarkable" return - that's a loss of 33.1 cents on every dollar and would quickly render anyone playing it without a mathematical advantage bankrupt. They also suggested that such a return reduced variance in the game, apparently not understanding that this return includes the top, multi-million dollar prizes. They confused hit frequency with the return of the game.

The tax incentive thing is also ridiculous. While it is true that one may deduct their losses up to the amount of their taxable winnings, if she were playing without an advantage, she would still lose and this offered no help on beating odds of 1 in 18 septillion.

Finally, they could have handed her tickets for free all day and she should have only hit what she did every quadrillion years. There are literally not enough raw materials available on our planet to produce the 18 septillion tickets that should have been necessary to hit what she did - even if mankind devoted all of its resources to the project.

The best speculative theory is that she was able to deduce an approximation of the algorithm used to distribute the tickets, but again that is only speculation. She clearly figured something out; to say that this article nailed it, however, is a serious misstatement.


There are literally not enough raw materials available on our planet to produce the 18 septillion tickets that should have been necessary to hit what she did - even if mankind devoted all of its resources to the project.

This is a dubious statement, but if you believe it, don't you think it calls into question some of the "odds" that have been bandied about with no support?


The losses are only subtracted from winnings, so it's not technically a subsidy.


Maybe "subsidy" is the wrong word, but she started out paying taxes on $300k of annuity income every year. If she bought e.g. $50k of scratchers in any particular year and didn't win anything, she lost $50k * (1 - top_tax_rate), not $50k. If I spend $50k on scratchers this year, I won't be able to write it off, because I've never made any money from the lottery, so my lottery spending will be considered a "hobby" rather than a "business".


If the losses cannot be written off, then you have this weird situation, where let's say in California you have a top tax rate of 52.9% combined, a person could've spent $500,000 on lotto tickets or raffle to win a $1 million and still end up with a loss.


Yeah that is definitely an issue. I think the boundary of acceptable write-offs is necessarily sort of fuzzy. Some things are obviously unacceptable, some things are obviously fine, and lots of stuff in the middle depends on the situation, on the discretion of IRS agents, and of course on the expertise of the CPA one hires to predict IRS decisions.

This particular situation reminds me of that of racehorse owners. Most owners will lose money in racing in any particular year. They hope to make enough in good years to break even over time. If there's never a good year, the IRS might eventually drop the "hobby" ax.

This is probably the biggest problem with the steady defunding of the IRS. They can still catch shameless cheaters like the morons who don't send in their employees' payroll deductions, in no small part because no CPA will touch that shit. CPAs are usually willing to discuss write-offs, however. The expansion of the set of acceptable write-offs is inherent to any income tax system, and since it has been left unchecked it has undermined the system we have.


Voltaire is also famous for making quite a lot of money gaming the lottery: http://www.todayifoundout.com/index.php/2013/05/how-voiltair...

Though the actual scheme was hatched by Charles Marie de la Condamine, rather than Voltaire. But Voltaire is the one who got the most fame (and possibly money) out of it.


Next you'll be telling me he didn't really say that thing about defending my right to say things.


I'm absolutely sure you are aware of it, and is making a sarcastic account of the misattribution. But just to spread the 'correct' knowledge - the quote, while attributed to Voltaire, as it fits his style so succinctly well, is not actually said by him.

It was a quote from 'The Friends of Voltaire', and misrepresented him.


Also, the quote is not "until death" but "until the end of the dinner".


I disapprove of your lottery algorithms, but I will defend to the death your right to sell them to me.


Marjorie and Gerald Selbee also figured out this flaw in the Cash Winfall game, presumably independently of the MIT team. Somehow they managed to buy $600,000 worth of lottery tickets over a three-day period by themselves. That's a lot of time at the ticket kiosk...

http://www.foxnews.com/scitech/2011/08/01/elderly-couple-che...

That article also gave more information on the lottery's stance on the matter:

But Paul Sternburg, the lottery’s executive director, believes they have no reason to apologize or even change the lottery's procedures -- pointing to $11.8 million in profits in 2011.

"It’s a niche game for a different audience," he told the Boston Globe. "You want to bring in as many players as possible. Some people chase a huge jackpot. Others are looking at odds."


As long as people continue to buy tickets, why should lottery officials care? The ticket sales go into a pool after the organizers Tae a cut, and then goes back to the winners.


Well I think the point is that it's not a sustainable system. If everybody were exploiting this loophole, it wouldn't be effective as a loophole anymore, meaning that people would stop buying tickets.

Of course, not everybody can exploit the loophole, only people with at least $100k to invest in the endeavor. So this means that the government is giving an unfair advantage, in a game that is supposed to be random chance, to the wealthy. As soon as those who can't take advantage of the lottery figure this out, they stop playing. This means the loophole stops being effective and the rich drop out too.


From what I understand about the system, the article is incorrect. You don't NEED to invest $100k to get a return. Investing $1,000, for instance, will also have the same probability of providing you proportionately equivalent return.


Spending lesser amounts means a higher volatility of returns. The expected return on a $1000 bet might be the same, but your chances of actually equalling (or bettering) that ROI are much lower than if you bet $100k, especially if the the prize money is concentrated at the top end.

The Boston Globe article implies that the MIT syndicates bought so many tickets they actually affected the distribution of the prizes in their favour http://www.boston.com/news/local/massachusetts/articles/2012...

Not to mention that having even just $1000 of free cash to "invest" in a positive sum gamble already puts you in a higher income/wealth bracket than most lotteries' most loyal players.


Actually, I think this issue was brought up in the book "How Not to be Wrong" by Jordan Ellenberg, and the MIT students eliminated risk by taking advantage of a Steiner system. So I suppose it favors the intelligent, not necessarily the rich.


Well there must be some minimum, otherwise we would have seen everybody who played on the right day win, right?


The sort of people who stop playing the lottery because the odds are bad were never playing the lottery in the first place.


lotteries primarily unfairly advantage the numerate.


The problem is the same as that for insider trading on the stock market: it undercuts trust in the market causing a drop in the number of participants which leads to less liquidity and a less efficient market.

Anyone who knew there was a way to garner the profits from the lottery, but didn't know the way, would be a fool to play.


> The problem is the same as that for insider trading on the stock market:

Nope, not at all. These people are playing by the rules. The lottery officials are aware of their play; and yet don't consider it illegal. There is nothing wrong with using your superior skillset legally to make some money.


The question was why should the lottery have a problem with that, not what the law is. If you design a game--whether it's a lottery or a market--that allows some an advantage others don't have or reasonably expect to get, then that's a bad design.


It's a lottery. The masses aren't playing it because they think it's equitable, the masses are playing it because they lack critical thinking skills.

As long as people think they can get rich quick, it's a good design.


IMO it's not the students that are in the wrong, it's the officials. The fact that they knew about this loophole and didn't nothing to close it is tantamount to bribery if you ask me.


Isn't this the same argument that gets you thrown out of casinos for counting cards?

If the game has a bug that only a few players know about, it isn't fair, by definition.


But a casino does not consider counting cards legal. Hence the boot.

Consider, for example, one of those "how many marbles are in this jar?" games. If I use my knowledge of math and physics to derive a pretty accurate estimate, it's not wrong, is it?


Your odds are stated on the back of the card; if you're playing at all, you are already a fool (or don't care)


Or you're too poor to envision any other way to get rich and the lottery is the one way you can fantasize. In my case, I play with my 4 best friends, mostly because it's fun and a way for us to get together on something (we all live in different cities now). It's a tiny amount of money very well spent for me.


I'm guessing, if the MIT group could reliably beat the game, that the odds were not stated on the back of the card.


The card doesn't state the odds for that particular card conditional on the date of its purchase; it is presumably an average across all card purchases.


Gamblers tend to believe they have "a system" of one kind or another, often based on misunderstandings of probability. I'm sure there's a proportion of the market who'd see this as evidence that "systems can really work" and be encouraged to play even more.


Then again, lottery organizers are known to give out more winnings to show people that You Can Win Too! The problem only happens when the public finds out that one person is consistently receiving the proceeds, and they feel that it's somehow unfair. But it's not really, since they're paying a much larger amount to buy all these tickets, not to mention the cost of processing the winnings, filling out tax forms, etc.


Your premise is flawed as you are assuming only rational actors are playing the lottery. By definition those playing the lottery are usually not rational actors and thus cannot fall into the framework you propose.


I don't assume that, just as I don't assume it with the stock market. The problem does not really lie with the actual unfairness of the game, it lies with the perception of unfairness. The stock market is always entirely unfair to retail investors, in comparison to professionals, for several reasons. But in times that retail investors view the market as unfair, the market suffers.


I read an article about one of these characters, not sure if its either of your examples, but the gist of it was that there was some semi-obvious hacks at work here.

One lottery would ship the winning tickets roll to one zipcode. Apparntly, they printed out the winning tickets and just queued it up via whatever delivery service they use, which turned out to be deterministic. No one ever coded in randomness in regards to store delivery. Someone figured this out by noticing the same few stores produced all the winners. He then went and bought a whole bunch of tickets from those stores when a new scratch-off game appeared and won against significant odds.

Or at least that's the story he presents, which is questionable as scratch winners aren't usually publicly reported. Some think he had inside information from a friend or relative in the Lottery commission who told him about that lack of randomness in delivery.


After reading the wired article, what's to stop people who work at the ticket printing companies from using their inside knowledge to exploit flaws?


Most likely are they prohibited from buying lottery tickets from the company that they work for.

Just like we where prohibited from gambling on the online gambling site i worked for a couple of years ago.


I don't know what the story is today, but some years ago I worked in the same office tower as the Ontario Gaming Corporation, and I had a nodding acquaintance with some of their systems people.

They told me that employees were allowed to purchase tickets. The theory was, if employees can't be trusted to buy tickets, there must be a flaw in the system. And if there's a flaw in the system, then it will be exploited whether you prohibit employees form directly purchasing tickets or not.

That obviously does not map directly to the employees of companies that print scratch-and-win tickets, of course.


If that were the only restriction the ticket companies could just sell the info.


Good point. If you read the Harper's article [0] about the Joan Ginther, the "luckiest woman on earth" mentioned in this thread's top comment, she seems to have gamed the system basically by having an inside man or two (while also being good at math).

[0] http://harpers.org/archive/2011/08/the-luckiest-woman-on-ear...


The Philadelphia Inquirer did a better job on that story. Nobody "inside", just using all publicly available information to "count packs" and piling up tax write-offs (click through to all three articles):

http://www.philly.com/philly/news/nation_world/Lotterys_luck...


Probably a combination of severe oversight, compartmentalization, and a few "examples" being set early on.



The third one links to this same page. I was confused for a second, thinking that people copy-pasted their own comments from the last time or something.


Sorry. Would correct, but outside the edit window. Thanks!

Disclaimer: ...but I have a time machine ;-)


The Irish National Lottery format used to be 36 choose 6, giving odds of a jackpot win at 1 in 1,947,792. The cost of a single ticket was £0.50; therefore you could buy up the entire "space" for £973,896.

Thus, when the jackpot rose above this value, it became economically viable to buy up the entire "space" to guarantee a win; this would result in a profit so as long as no one else bought a winning ticket. This is what a group of individuals attempted to do in May 1992.[0]

They were limited by the physical requirement of filling out all such possible combinations on the paper tickets, but they attempted to spread out the work by pre-filling out combinations over several months and waiting for the jackpot to rise to a large value before "deploying" the tickets.

0. https://en.wikipedia.org/wiki/National_Lottery_(Ireland)#His...


Not quite. Covering the space only guarantees you a share of the jackpot - it wasn't unknown for there to be more than 5 winners especially when the jackpot was big as ticket sales skyrocketed What made the play profitable was the introduction of novelty guaranteed amounts for matching 5 and 4 numbers - regardless of the number of winners.


> when the jackpot rose above this value

Maybe twice that value, to account for taxes (idk Irish lottery tax rates though).


As this article from 2012 makes clear, the positive return on investment resulted from unusual rules in one state lottery game that has now been discontinued. The typical state lottery in most parts of the United States has parimutuel pay-outs for winning tickets, meaning that if multiple purchasers have winning numbers, they split the prize in a way that ensures that the lottery doesn't pay out more money than was bet for that drawing. An example from Britain was a national lottery that had something like seventy-six different winners, who all bet on the same "lucky" number that happened to be drawn in that drawing. They split the prize equally, so that each bettor's individual winnings from a large prize were not particularly large. The number may have been lucky in the sense that it matched the drawn number on that one occasion, but the number wasn't INDIVIDUALLY lucky for each person who bet it.

Over and over and over, some people have winning tickets, but most people have losing tickets. When a lottery is structured in the typical parimutuel way, as most lotteries are, even if you buy all the tickets available for sale in the next drawing, which takes a big investment, you can't be sure of winning a full prize individually, because other bettors may have a collision with your choice of a winning ticket number. tl;dr: A bug in one state lottery game was discovered by MIT students, who invested in exploiting the bug until the game was closed.


The url of this article and the titles of other uses the word "scammed" which is unfortunate since they don't seem to have done anything of the sort.


I find the tone of the article, which I would characterize as righteous indignation that the group was able to partially unrig a mostly rigged game to their favor, baffling.

The fact that everyone involved apparently got what they wanted[1] out of the situation makes that posture even more absurd.

[1] viz. per the article, the MIT group got a 15-20% return, the Lottery profited from the tickets the MIT group bought, and the normal lottery winners, presumably got a mildly lower EV, but were never completely deprived of their shot at the jackpot (which is the only thing they apparently care about, since if they were sensitive to EV, they wouldn't be playing the lottery without a strategy like the MIT group's).


Well, the Lottery profited from the game - they lost money on the tickets purchased by the MIT group.


I suppose that's true from a technical perspective, if the group was making any return. But the article says that game officials understood what the group was doing and facilitated it because it 'increased revenues and made the lottery even more successful'. So they weren't making money on those specific tickets, but still supposedly knew what was going on and allowed it to continue because they were getting what they wanted out of the situation, so my main point still stands, even with regards to the game officials.


Probably the original title of the article, which they (rightfully so) changed.


Exactly. They did nothing illegal or immoral.


What did they do?

BUMP: those downvoting. It's a serious question. The article doesn't explain the student's methods. I really don't know what they did to game the system. Is it well known?


Ok, found the summary on Wikipedia [0], which matched my recollection from a TV news magazine report from a few years ago when this came out.

When the jackpot reached a certain point, they'd increase the payout on the lower tier prizes (match 5, 4, 3) from ($4000, $150, $5) to something more significant.

Instead of needing to match all 6 numbers (range 1..46), you could get a good return by only trying to match a smaller set. I guess they worked out a good distribution of tickets to purchase that covered a large percentage of those possibilities. They were purchasing 300k tickets to guarantee their 15-20% ROI.

[0] http://en.wikipedia.org/wiki/Massachusetts_Lottery#Cash_Winf...


I think the tone of the article is because the lottery officials did nothing to stop the practice.

"The inspector general’s report claims that lottery officials actually bent rules to allow the group to buy hundreds of thousands of the $2 tickets, because doing so increased revenues and made the lottery even more successful."


"This isn’t the first time that MIT has been involved in a gambling controversy."

If it isn't illegal, what's wrong with using brains to make money?


I think that to many who are not mathematically inclined, the statement "They used mathematics to beat the lottery" is more or less equivalent to "They used magic to beat the lottery".


Or rather they "hacked" into the lottery. The general population is scared by geeks who can use math and reasoning in the "real world" for actual gain.


While it is a myth that Card Counting is illegal it is also true that no one has the right to gamble and casinos can just refuse to allow a person to participate in their own gambling floors. http://en.wikipedia.org/wiki/Card_counting

MIT students and former students did make it a practice to beat the casinos around the world. http://en.wikipedia.org/wiki/MIT_Blackjack_Team It is at least strongly controversial that they made millions by turning the tables on casinos. Unlike casinos who ask winners to keep coming back and playing as long as possible since odds are they will lose their winnings if they continue to play.

My dad had a friend who had won tens of thousands of dollars in Las Vegas. I still remember my dad talking with him in the 1980s on the phone while he was at the table. My dad told him to take the money and run. My dad's friend lost all of it in the 40 minutes and didn't listen to his advice.


Not saying you're wrong, but this is quintessentially an American statement. The rest of the world regards morality, and not law, as sacrosanct. So even if you can make money legally by exploiting someone (e.g. hedge fund extorting money from the Congo), you ought not to do it. [Yes, I know that these guys weren't exploiting anyone, just answering your question.]


Your statement is not accurate, because the "rest of the world" has different concepts for morality.

For instance, other parts of the world have moral principles more in line with "don't get caught" or "don't embarrass your superiors" or "never side with anyone against The Family" than with "do no harm".

The typical American standard of morality is set so high that no one, other Americans in particular, including the very person professing that moral standard, can be reasonably expected to live up to it. Hypocrisy abounds among those with ultrahigh moral standards. Furthermore, the details of American morals are so diverse that anyone who manages to be a paragon by one person's standard may be no more than a low-life slimeball by another's.

In contrast, compliance with the letter of the law is a far more achievable standard.

If there is anyone who is at fault here, it is the mathematically incompetent person who designed the payout system for the lottery. This was, at its heart, no different from a finance quant unraveling the details of a complex derivative to discover an arbitrage opportunity for the firm. Discovery and use of the exploit corrected the artificially high margin for the state in administering the game to one more realistic for the mathematically flawed payout model.


Lotteries are generally a corrupt enterprise to begin with, so the moral scales probably lean toward the side of the MIT students.

https://www.youtube.com/watch?v=9PK-netuhHA


My thoughts exactly. Lotteries are primarily a tax on people who can't do math. So if those who can do math make money with it, the more the merrier. In fact, they'd be doing a public service if they bankrupted the lottery in question.

There used to be a sign on I-10 as you approached the Biloxi, Mississippi area. It was for a casino and said something like "Our slots have 98% payout!". I have no doubt as to the veracity of such a statement, because 2% of the money that flows through slot machines is more than enough to turn a profit from them.


There are locals casinos in Vegas that have video poker machines which pay out more than 100% with perfect play strategy, the problem is that the stakes are so low, say 25 cents, that it would take way too long to make any real money.

These lotteries are obviously a different story since you can buy as many tickets as you want.


Those sound like a 'loss leader' marketing strategy. Whoever operates the machines may lose money consistently, but they bring customers in who otherwise might not be there.


But then shouldn't the government not be able to sell lottery tickets for the same reason?


You are probably just being sarcastic. But yes, completely. The kicker for me is that it is illegal for anyone else to run a lottery (Racketeering).

Lottery TV commercials literally make me want to puke every time I see them. https://www.youtube.com/watch?v=yaB28DCxFQI


I actually am wholly opposed to government-run lotteries, mainly for the reasons you cited but also because they prey upon the poor and act as a wealth redistribution engine from the poor to the rich.

My question is why would taking advantage of this system for one's own gain be unethical? The administrators believe (apparently erroneously) that they have a built-in statistical advantage over anybody playing. So by the logic that the MIT students shouldn't exploit a flaw in the system even though it is legal because it is unethical, then the lottery administrators should not be able to run a lottery for the same reason.


Lot's of things aren't exactly illegal, yet still amoral or can cause controversy. E.g. big corporations funneling their profits to other countries to avoid being taxed (Dutch sandwich)

My point being, something doesn't have to be illegal to be wrong. In this case it's mainly strange that the lottery didn't change things when they became aware of the scheme.


Corporations are amoral entities and taxation is an amoral endeavor.

It's essentially a very complicated structure of IF/THEN/ELSE conditions. If it's possible to decrease its tax burden while complying with the law, that's what a corporation is supposed to do. It's not cheating to follow the rules. If one doesn't like the outcome, one should seek to change the law.


pretending that the rules of capitalism are somehow beyond the realm of the human and moral is repugnant


pretending that any two people could agree on what's "moral" actually means and that crying that something is immoral isn't just a more accepted way of saying "I don't like that".


Pretending that your definition of morality is the only legitimate one is naive.

Is it moral for the mafia to use the threat of force to take a percentage of a business's income? I'd submit that it's not and I suspect that you agree with that.(I'll concede that I don't know you and can't speak for you)

Why does that same behavior become moral if/when a government does it?

Yet, one of those entities can do it legally.


I am not a member of the mafia, nor have I used any of their services. I do not owe them any money, therefore it would be wrong for them to demand any money from me.

I am a member of a society which has a representative government which acts on its behalf. I have used their services and therefore I owe them money. Therefore, it is legitimate for them to demand that money from me.

And both these entities can do so legally. It would be entirely legal for the mafia to use the legal system to demand money from you in the same way the government would (or that any business or organisation you used services from would). The very fact they choose not to, suggests their claim is illegitimate.


>"And both these entities can do so legally. It would be entirely legal for the mafia to use the legal system to demand money from you in the same way the government would (or that any business or organisation you used services from would). The very fact they choose not to, suggests their claim is illegitimate."

Hate to be the guy that uses a contrived example, but how about this: "I'll just come with a bunch of my worker-buddies, and we'll mow your lawn, trim your bushes and clean your pool. Every day, 7 times more than you'd like per week. Come next Monday, we'll be expecting your dues for our services. And if you don't pay up, well we'll just legally get your employer to withhold it from you. I mean, it's not like we're holding a gun to your head to make you pay, or breaking your windows or anything to intimidate you. Right?

The whole concept of government, social contract, and "the consent of the public", along with the example you used as an argument all constitute a form of circular reasoning to me. None of it derives from base, irreducible principles, so are completely arbitrary. That's why this whole "not all immoral things are illegal" argument arose, because people can't even agree on that, nor can they accept that the majority has spoken with respect to legality representing overall morals.


If I lived in a housing scheme that had such an arrangement ("we have a gardener that comes around every week"), then Yes, if I'd bought that house with that arrangement, I don't get to dodge the fees, just because I think he should only come around once a fortnight.

The base principle is that society is made up of people and those people then choose the rules for that society. If you don't like that, you can often vote to change those rules, or you can choose another society.

Most societies have fees to be a member (known as taxes) and frankly, it's a bit late to complain about these fees when you've already used the privileges of that society to make a ton of money. It's like eating at a restaurant and complaining, after you've had 6 courses, that the food is inedible and you don't want to pay.


The base principle is that society is made up of people and those people then choose the rules for that society. If you don't like that, you can often vote to change those rules, or you can choose another society.

Or you can use the rules for your own benefit.

If the rules of the aforementioned society make it possible to reduce your tax burden, it's not a moral issue if you choose to avail yourself of them.

If your tax burden can be X or Y depending on your choices and Y < X, it's not a moral shortcoming if you choose to pay Y instead of X.

Our society uses tax policy to shape behavior. We all know this. That's why student loan and mortgage interest are deductible. It's disingenuous for people to complain when they discover that tax policy is shaping behavior.

We see this from the middle-class family who donates old clothes to Goodwill or the Salvation Army instead of throwing them away all the way up through the billionaire who makes sure that he spends at least 182 days per year outside of New York.


Actually, they're fundamentally different.

But that has nothing to do with the original post I replied to. You've changed the topic.

Are you conceding that your argument that taxes are equivalent to a protection racket is wrong?


My point is the same. Neither circumstance is more moral than the other. They are both inherently amoral.

Of course, taxation is legal. Using the tax code to minimize one's tax liability is legal and also amoral.


Let's be clear here: you're saying that forcing someone to pay you money they don't owe you (e.g. mafia protection racket) is amoral and just the same as forcing someone to pay money they do owe you (e.g. taxes)?

Are you sure about this?


My primary point is that it's not wrong to pay the minimum necessary tax bill because taxation isn't a moral enterprise. It happens without regard to morality. It's amoral.

To address your direct question, it's my position that using force or the threat of force to compel someone to pay you money -that you say they owe you- is no more moral when the government does it than when the Gambinos did it. Obviously, it's legal when the government does it but the government is not a moral entity.


So if I owe you money for some work, and simply refuse to pay it, you should have no legal recourse? How would that work in society? Would everyone just have to trust each other and if they were ripped off, too bad?


That's a strawman.


That's a useless reply. I was kind of hoping you'd expand on how you thought such a system would work (you could imagine something with a trust network of third party escrow, for example).

Try thinking more about your own arguments and how they might practically be applied.


It's a strawman.

Debt currently works that way in the vast majority of cases.

If you don't pay Comcast or Verizon (or whomever) for your internet service, they'll stop providing service to you. They'll also report you to Equifax, Trans Union and Experian so that other people will know that you can't be trusted to pay your debts and they'll require a security deposit before they'll provide you with service.

If you overdraw your bank account and close it without settling the debt, they'll report you so that other banks know about the issue and those other banks will refuse to allow you to open a new account until the original matter is resolved.

If you don't pay your Visa bill, again, they will stop extending credit to you and you'll be reported to Equifax, Trans Union and Experian. Other credit card companies will know about your history and they will refuse to extend any credit to you.

In none of those cases is force or the threat of force used to collect a debt.


Not in the UK. I guess you don't have debt collection agencies where you are or anything like bailiffs.

EDIT: Oh, and you're misusing the term "strawman". I was asking questions about your post, not positing an argument for you.


Your question presupposes that there would be no recourse.

I never advocated such a position.

It was a strawman.


One method I've seen proposed to answer your hypothetical is:

http://en.wikipedia.org/wiki/Dispute_resolution_organization


your analogy collapses by equating the demand for yardwork with the demand for services that ensure our collective survival: clean water, emergency services, safe travel, reasonable freedom from foreign invasion and anarchy, and mostly-safe economic system. You can't "opt-out" of those services, and even if you could, it's predicable you'd immediately opt-in for them the moment your life was in danger (say, in the case of a medical emergency, your survival instinct will inexorably override your passion to be free from the big-bad "gub'ment" ).


Can you opt out of receiving the government's "services"?

We're only obliged to follow the letter of the law. If there is no law against making profits where they are beyond the reach of local taxation, there's nothing objectively wrong about it.

Even using your own reasoning, if the profit is made elsewhere, the only moral obligation is to pay the legal taxes that apply in that locale.


> Can you opt out of receiving the government's "services"?

Yes. I don't pay any taxes to the US government, for example, because I don't use any of their services.


I laughed out loud at this.

In no other developed country (in the sense of a competitive GDP, somewhat large and somewhat well educated population) have I seen the same disdain and mistrust for government. Why is it amoral for a government to take taxes if you are - born in a hospital funded by taxes, given vaccines and medication partly funded by taxes, drive to/from home on roads built by taxes, so on and so forth. The people who thing it's unfair they have to pay taxes - what would you prefer? Living in an "AT&T country" where every single service is "privately" owned and you'd be charged fees for it? Sounds like a dream.

Comparatively, in countries such as Sweden and Norway, everyone pays taxes (much moreso than in the good old US of A), and yet the tax agency is rated the most trusted government entity in the government. Strangely enough, this "amorality" also leads to some of the best standards of living and social mobility in the world?


Why is it amoral for a government to take taxes

Is it possible that you're conflating the definitions of immoral and amoral?

born in a hospital funded by taxes

This is an assumption. There are many private hospitals.

given vaccines and medication partly funded by taxes

Vaccines are mandated. It's circular reasoning to say that the costs of someone taking vaccines are justification for taking their money when you forced them to take the vaccine.

drive to/from home on roads built by taxes

We had roads before direct taxation. The fact that we pay for them with tax money doesn't mean that they wouldn't exist without them.

Comparatively, in countries such as Sweden and Norway, everyone pays taxes (much moreso than in the good old US of A), and yet the tax agency is rated the most trusted government entity in the government.

I don't know anything of the political situation in Sweden or Norway. Does their tax collecting branch of government ever get used as a political weapon, the way the IRS does?


And the arithmetic also includes:

if( (Cost_of_breaking_law * %_chance_of_getting_caught) < profit ) {break_law;}


Corporations are no different from people in this regard; people often break the law when the penalty is light.

The problem is that the penalties for "corporate crime" are so low.

If the penalty for bank robbery was only 50% of the profit, no bank in America would be safe.


Even if the penalty was 200% of the profit, that would be the case.


s/if/while/g


>yet still amoral or can cause controversy. E.g. big corporations funneling their profits to other countries to avoid being taxed

I see nothing morally wrong with that.

I do agree the law has nothing to do with morality, eg. war on drugs, slavery, etc.


> I see nothing morally wrong with that.

Exactly - if the loan shark has his legs broken and is robbed of his ill-gotten fortune, how immoral is that?


I'd say it's more akin to a theft taking a smaller percentage of your income.


Who's the thief? The lottery company or the person "robbing" the lottery company?

Once you pay over your cash, it belongs to the lottery commission. Your chance of winning is infinitesimal to the point that you may as well spend your money on other things, like paying down your mortgage quicker or paying off your car quicker or whatever other debts you have - either way, the money is gone - unless what you're getting out of it is that period between purchase and draw - the _hope_ of the win, you're likely getting nothing out of your purchase. If you're getting your emotional high from playing rather than the hope of winning, then perhaps the $5 is a good purchase, it's hard to say; otherwise, I'd say it's better spent on something the _does_ have a financial or emotional reward.

Either way, I'm not really clear on what your point is... perhaps you can clarify.


>If you're getting your emotional high from playing rather than the hope of winning, then perhaps the $5 is a good purchase, it's hard to say; otherwise, I'd say it's better spent on something the _does_ have a financial or emotional reward.

It may not be worth the $5 even if it does give you an emotional high — perhaps especially so. I am reminded of http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/, which argues that winning the lottery is the wrong sort of hope to invest in, both financially and emotionally. I found that article's argument convincing.


I have a number of thoughts about this article. I don't necessarily disagree with what they're saying but: People are going to fantasize anyway, the fantasy is impeded without any possibility of it being fulfilled... they're probably never going to marry a prince(ss), but some do. The dollar they spend makes the fantasy a possibility. Like the little girl playing dress up and make believing what it would be like before she ever has any real understanding of the reality. People fantasize about all kinds of things every day (most with no direct financial cost, except by what they're not earning while they're busy daydreaming), at the cost of things they probably should be worrying about, but don't.

Day dreaming is a means of escaping your existing reality... but if you take no action, then your day dreaming is just that. You need to take action to give any possibility of it ever becoming more than that. In this case, the $5 for the ticket is that step. Perhaps the fantasy is what you live for. Perhaps you spend your life with your head buried in romance novels, who knows, the effect is the same - you paid $5 for the book which gave you a few good hours of day dreaming, or perhaps even a number of days of escape. The lottery ticket gave you a couple of hours escape before you come back to reality. It's just a pleasant way to pass the time. You can tell just how many people have this mindset by the number of copies of Fifty Shades of Grey you saw being read on public transit after it came out.


Quite a lot of people see gambling as fun and/or random activity. Play some blackjack with friends: everyone wins/loses and have a great time. Then along comes someone who counts cards and... game ceases to be fun and players just drop out.

There is nothing neither wrong nor immoral about such behaviour, just a huge portion of others (those who just play for fun or are envious) sees such activity as an act of jerkiness.


A card counter in a casino doesn't reduce anyone else's fun. He just reduces the profits of the casinos, which generally catch on long before they're seriously hurt.

A while back I read about an early Microsoft employee who, once a year, goes to Vegas and counts cards at high stakes until they throw him out. Generally it takes about an hour, he makes several multiples of $10K, and donates it to charity.


Any chance you have a link to the article about the charitable card counter? That sounds fascinating.


Sorry, it's been a while. I tried googling but no luck. Seems like it was someone fairly well known.



I don't think so but that's pretty interesting.


Er, isn't blackjack usually against the house? I always thought of poker as the quintessential "fun with friends" game. Hang out, drink a couple beers, everyone pitches in $10 on the poker game to make it entertaining.

Blackjack isn't really a party game.


friendzis is contemplating playing with friends at a blackjack table at a casino (which can be super fun, second to a hot craps table, IMO), not playing in a home blackjack game (which is dreadfully boring).


The only time I've "won" anything in a casino is when I hit the "drink service" button to get a free drink...


That was my go-to move when friends would plan a trip to a casino. I don't have the patience to learn and practice the odds-shaving tricks out there and I don't have the disposable income to toss down a decent chunk on the slight chance that I'll win an amount proportional to the risk...

...but I do like hanging out with my friends and occasionally agreed to join up. In the end, I just hung out and played low-stakes games, getting "free" drinks the whole time. Ended up spending about as much as if we'd decided to hang out at a moderately pricey bar, got tipsy, and had a good time hanging out with my friends.

I just looked at it like any other night out spending a few bucks on drinks and maybe a few more playing Megatouch or feeding the jukebox. At no point did I hold any expectations of winning loads of money.


As a broke grad student, I did the same; except, I never really bet anything. I would put $20 in the slot machine, and promptly hit the "drink service" button. Once the drink came, I'd hit the "cash out" button, collect my $20 and move on. I know this sounds terrible, but (a) I didn't have the spare cash to throw away at the casino, and (b) I didn't have the skills to actually play any of the games where skills counted (like poker or blackjack).


That's interesting. I have memory issues, I have worked on it, nothing helps, but it made me good at documenting (mainly for my own sake but everybody gains from it). That's also why I tend not to play card games, because most of them seems to be based on recollecting where the cards are.


When it's my money on the table; jerkiness of the counter isn't the issue. When I have a $1000 bet and the dealer is showing a 6 and some moron betting the table minimum hits a 12, leading to the dealer drawing a 21 when they would have busted: that's real jerkiness. Playing to win is never being a jerk. I went to the Collision conference this year and raised more money at the blackjack table than I did from investors. If that's being a jerk, I'll take it. I made $25k in a few hours starting from $500: such a better use of my time than endless meetings begging for checks. Vegas equity is the best kind. Also, if a table gets hot, people don't drop out; it becomes a crowded party spot. A card counter helps everyone: piggyback on his strategy and do what he does and you'll win too.


What service do you provide for the moron betting the table minimum that entitles you to play his/her hand?


Given the scruples of those running the house (Lottery, Casinos, Government etc.) I'd say there's nothing illegal, immoral or anything otherwise about it. If a loan shark gets their legs broken and they're robbed of their ill gotten gains, who do you blame? Exploiting people's weakness for quick rich schemes, gambling, alcohol, drugs, insecurities and fears is as immoral as those manipulating their systems for their own ends. As far as I'm concerned, good on them.


Well by gaming the lottery, they are taking a little bit of money from a lot of (largely poor) ticket buyers and profiting big from it. It's the same kind of dynamic as counterfeiting. I'd argue that that's a problem mostly with the lottery system and not with the MIT students' ploy, but they exploited a system with full knowledge of how it operates and how their actions hurt others. That does not come without moral responsibility.

I can't find anything morally wrong about card counting though, Blackjack is presented as a game where skill can affect the outcome, even though in absense of card counting it's a game of luck. I'm sure that a fair number of habitual players develop some kind of card-counting heuristic innately, and in that case people who really count cards (without using some kind of device) are just better players and deserve to win (although I think casinos have good reason to forbid the technique, as the alternative would be to get rid of Blackjack).


> they are taking a little bit of money from a lot of (largely poor) ticket buyers

They absolutely are not. Once someone buys a lottery ticket it's no longer their money. It's the lottery commission's, or the state's, or whomever.

To say that the MIT students were taking advantage of "(largely poor) ticket buyers" is at best extraordinarily disingenuous, if not willfully disregarding several key facts.


They must be lessening the chances of winning or the amount per win for other players?! After all I am pretty sure that lottery is a zero sum game.


If you're not a group of geniuses at MIT, you really shouldn't be surprised when you lose money gambling. If you're poor enough that I'm supposed to feel sorry for you, buying a lottery ticket is a very irrational thing to be doing.


Indeed, it is in fact the lottery organizers that are scamming people out of their money by giving false impressions about the expected returns.


What false impressions would those be? They haven't been exactly shy about publishing the odds (one in hundreds of millions) of winning the jackpot. Odds for smaller prizes are much better, and they get even better on things like scratch cards.


Have you ever seen a lottery ticket?


> (although I think casinos have good reason to forbid the technique, as the alternative would be to get rid of Blackjack).

Another alternative is to play less deep into the shoe before reshuffling. Reshuffle often enough and the house has an advantage over card counters. However, this slows down play and therefore the reduces the rate they bring in money from people who don't counting cards (or count cards poorly).


Everything that is illegal was legal at some point.

Saying something is legal is pretty much the lowest defense you can use to justify something.


Negative? why?


Not using your morale might be wrong.


This article strongly implies there was something morally wrong about what the students did but doesn't detail any actual misconduct on anyones part. Sounds like the lottery officials just got their pants in a bunch because they like to be the ones taking advantage of other people's naiveté and not the other way around. Ironic that the article embeds a video of John Oliver ripping the lottery for taking advantage of those who can least afford it.


Sounds like lottery officials didn't "get their pants in a bunch" - they were actually complacent in the scheme.

>A recent report by the state’s inspector general reveals more details about the scheme, including the fact that the Massachusetts Lottery knew of the students’ ploy and for years did nothing to stop it. The inspector general’s report claims that lottery officials actually bent rules to allow the group to buy hundreds of thousands of the $2 tickets, because doing so increased revenues and made the lottery even more successful. While the students’ actions are not illegal, state treasurer Steven Grossman, who oversees the lottery, finally stopped the game this year.


They're (wilfully) complacent and indirectly complicit. The more people buy tickets, the more money they make. If someone finds a flaw that causes them to buy a shit ton of tickets, the lottery commission makes a shit ton of cash - a portion of which gets paid out in winnings. If someone exploiting the system makes the lottery commission more money, why on earth would they fix it? They're getting more rich by not fixing it.


This doesn't make sense if the group buying the shit ton of tickets is making money. Overall more money goes out than comes in. If someone puts $600k and get $660k out, you can't make that up in volume.

If the lottery is still making money, it must come from other people who aren't winning but still playing.

I'm not sure exactly how this lottery works, but I think in other games there is no pile of cash sitting around. Instead the owner of the game insures it so that an intermediary (insurance company) pays the winner. If that's the case here the lottery commission will end up paying higher insurance premiums over the long term, but might show a short term profit.

But if you take into account all of the sources of money, there's no way the lottery commission could come out ahead on this.


More tickets sold still means more income for the lottery.

That jackpot was going to be paid to someone, this group merely became that someone.

Basically, they chose the best time to buy in so that they had a higher chance of winning.

Moreover, when the jackpot grows high, more people play. It's almost certain that their ticket buying inspired other people to buy more tickets as well.


I think you meant to say "complicit in the scheme". You could be complacent about it, but not in it.


Lottery = Poor People Tax and should be removed from Government.

http://www.businessinsider.com/lottery-is-a-tax-on-the-poor-...


Poor people or people that don't mind taking a risk for the chance of a reward?

I know fairly wealthy people that still dabble on the lottery. They well aware that the odds are stacked against them and many of them can quote the statistical probability of their making (or not making) a profit on their play, but they still gamble because a). it's amusing and b). because just maybe they'll get lucky and will get a bazillion percent return on their investment - plus, the amount they spend on the lottery is totally meaningless to them.

Eventually you get to a point where the $5 (or whatever it costs) is so trivial it makes zero difference in your life, so why not, right? It's not really that much unlike Venture Capitalists. 95% of startups fail, yet they still get VCs clamoring to invest in them every year because 5% of them may pay off a windfall return. VCs are no slouches in finances; they're sharp, quick witted, ruthless hustlers, yet still they play this lottery.

I would say that the lottery is less a tax on the poor than it is a tax on those that are either ignorant to the math, aren't risk averse or are well off enough that the cost of playing the lottery is much less meaningful to their bottom line than the potential win would be.

After all, at least 1 person wins it most weeks, and every play has an equal chance of being a winner - why not you? I'll spend my $5 on ice cream, because I'd rather do something that will definitely make me feel good now than spend $5 buying a piece of paper that will most probably be garbage in a few hours and make me feel like I wasted the money - in the hope that just perhaps I'll get rich and never have to worry about anything again, supposedly; though, I guess it's no different than people supporting the Leafs, hoping every week that their team will win, only to get crushed when they lose...again. Given they're (allegedly, according to their fans) the richest team in the NHL despite consistently sucking, it would appear that hope is a trillion dollar industry, find a way to sell hope to everyone and you'll make your own windfall.


>I know fairly wealthy people that still dabble on the lottery.

This might be obvious to everyone, but gambling expenditure is higher (as a percentage) in low-income households, and still doesn't exceed 1% of disposable income in any income group in the UK.

Ref: http://www.ons.gov.uk/ons/rel/family-spending/family-spendin...

People with more economic power can participate in forms of gambling with a lower rake: we might call those investments.


> This might be obvious to everyone, but gambling expenditure is higher (as a percentage) in low-income households

As is everything. Your household grocery bill is higher (as a percentage) in low-income households. Everything is a higher percentage because the cost of stuff doesn't go down when you have little money. Gambling, alcoholism and drugs, medical bills, life don't cost less when you're broke, you just have to pick and choose what you buy to make ends meet.

Hope and escape are the biggest sellers on the market. When everything around you is geared towards selling "bigger is better", "newer is better", "richer is better" and you have no means to participate in that "Xer is better" society. Beauty companies sell us on "just use our makeup and it will cover all your flaws and make you look beautiful", fitness companies sell us on "just use our product and it will make you look beautiful", clothing companies "just buy our clothes, they will make you look beautiful"... The media constantly brainwash people to act that way.

Is it any wonder that people will spend out on anything that will let them hope (even if just for an hour or two) that perhaps, no matter how small the odds, they just might have a shot of "belonging" and joining those that have made it... or purchase some means of escaping from that whole system - if just for the hour or two it takes the drugs to wear off.

That's human nature. We live emotionally. We will die emotionally. No amount of math or education is going to change that. As long as the media keeps drumming its ever present beat that you need money to belong, you need stuff to belong, you need to be someone to belong, people will keep spending money on the hope of belonging... or spending money on a means of escaping from that pressure.


> As is everything. [Everything] is higher (as a percentage) in low-income households.

No. Exceptions including (from the link above):

   Buns, cakes, biscuits etc.   Beef (fresh, chilled or frozen)    Bacon and ham   Fish and fish products  Milk     Butter Margarine, other vegetable fats and peanut butter   Fresh fruit  Dried fruit and nuts Preserved fruit and fruit based products  Fresh vegetables  Other preserved or processed vegetables    Sugar and sugar products Jams, marmalades Chocolate    Other food products     Cocoa and powdered chocolate Fruit and vegetable juices (inc. fruit squash)  Soft drinks (inc. fizzy and ready to drink fruit drinks)                              Beer, lager, ciders and perry (brought home)           Men's outer garments Men's under garments Women's outer garments Women's under garments  Boys' outer garments (5-15) Girls' outer garments (5-15) Infants' outer garments (under 5) Children's under garments (under 16)  Accessories Haberdashery and clothing hire                                                                  hire/repair of furniture/furnishings      Medicines, prescriptions, healthcare products etc.         Purchase of new cars and vans Purchase of second hand cars or vans Purchase of motorcycles and other vehicles   Spares and accessories Petrol, diesel and other motor oils Repairs and servicing Other motoring costs   Rail and tube fares Bus and coach fares  Other travel and transport                                      TV, video and computers        Computer software and games Equipment for sport, camping and open-air recreation Horticultural goods, garden equipment and plants Pets and pet food   Sports admissions, subscriptions, leisure class fees and equipment hire Cinema, theatre and museums etc. TV, video, satellite rental, cable subscriptions and TV licences  Development of film, deposit for film development, passport photos, holiday and school photos Gambling payments    Diaries, address books, cards etc. Newspapers    Package holidays - UK Package holidays - abroad             Restaurant and café meals Alcoholic drinks (away from home) Take away meals eaten at home Other take-away and snack food Contract catering (food) and canteens   Holiday in the UK Holiday abroad Room hire                           Hairdressing, beauty treatment Toilet paper   Hair products, cosmetics and related electrical appliances      Household insurances - structural, contents and appliances Medical insurance premiums Vehicle insurance including boat insurance Non-package holiday, other travel insurance   Moving house  Other services and professional fees              Money, cash gifts given to children Cash gifts and donations7 Club instalment payments (child) and interest on credit cards
Healthcare is explicitly included as something high-income households spend a larger % on.


Please disregard the data here, in my haste I buggered it up :)


> Poor people or people that don't mind taking a risk for the chance of a reward?

People who don't mind paying for the feeling that they have a chance to win. Their actual chance to win is far too small of course (unless you're at MIT), but the thrill they feel is real. That's what you pay for. Just like a roller coaster ride or something.


This is exactly the point. Playing the lottery is a relatively cheap and accessible licence to dream, regardless of the actual odds of fulfilling that dream. The journey is the fun part, even if you never reach the destination.


There is a crucial difference between the lottery and startup investments. Presumably the latter have positive expected payout, whereas the lottery has negative expected payout. If the $5 makes zero difference to your life then the expected payout of $3 makes even less than zero difference to you life, so it's still not rational to play the lottery. Certainly there are contrived circumstances when it's rational to play the lottery, such as you have $5 in your bank account but you need $500,000 for a medical operation otherwise you die, but for most people that does not apply.


The entire point of being a VC is that the Expected Value should be greater than the investment.

If a VC generates the same return as investments in the lottery, that VC would quickly cease operations.


Yes, but every VC knows that it's still a gamble that may not, and probably won't pay off. They spread their risk across many startups in order to minimize losses that are covered by huge windfalls the come from the big winners. At the end of the day though, it's still a gamble. They could end up losing it all.


Yes, but their investment still has a positive ROI (if they do their homework and the economy doesn't collapse, that is). The ROI on a lottery ticket is negative (unless you're at MIT and figure out a loophole like this).


The fact you needed to include a proviso proves my point.


Being negative EV does not make it an irrational decision or a tax.

A lottery win, unlikely as it is, could be the only way that poor people can change their life circumstances. What's my chance to buy a house or retire comfortably from the savings on minimum wage with no existing assets? What's my chance by spending some of my disposable income playing the lottery?

Framed this way, it's understandable. And perhaps it's preferable that the government runs it, rather than someone acting unethically. Commerce (and mafia) know they can afford to run a less fair or reliable lottery than government normally chooses to, and empirically, that's what they do.

The government should rather put in place support and security, acting to reduce systematic inequality, so that poor people don't have to resort to unfair lotteries as their only financial solace.

[0]https://en.wikipedia.org/wiki/Numbers_game


It's been my understanding that the local bookie is slightly better than the state for small time gambling.

Meaning, on the three digit lottery drawing, the state pays 500 to 1 on a game where the odds of winning are 1000 to 1. In order to be the more attractive alternative to the state lottery, bookies pay 600 to 1.

For the small time payouts, I'd trust that the bookie's desire to keep the bets rolling in will be inducement enough to pay. They operate in small circles and word would spread quickly if a bookie refused to pay someone who had legitimately won.


Furthermore, the local bookie quite often uses the officially published state lottery numbers as the basis for his own game, and keeps his books more open to his players than the state does.

I recall a certain game, run out of a certain bar, wherein the players paid $20 to select a set of numbers, to create their own "bingo card". Once the game was closed, the organizers took their 20%, the remainder was the jackpot, and then they published that amount with all player-selected combinations, without any names. The state lottery acted as the caller. Every official drawing converted uncalled numbers into called numbers, and when all numbers on someone's card had been called, they won. Any player could check whether they--or anyone else--had won as a result of the most recent drawing.

It was assumed that all players knew which of the published combinations was theirs, and they could all talk to each other. So if they got the unremarkable shopping bag full of $20 bills, and it was not the published jackpot amount, word would get around, and people would stop playing.

State lotteries typically allocate 5-10% for game management and promotion and a larger fraction for the state, for a total rake of 33-50%. Delaware, Oregon, Rhode Island, South Dakota, and West Virginia all keep more than 50% of the player bets.[0] Massachusetts actually runs a fairer game than most.

So if you want to be a small-time bookie, you now know which five states are the most profitable to operate in--along with the six states with no lotteries that are not casino-laden Nevada: Alabama, Mississippi, Utah, Alaska, Hawaii, and Wyoming.

[0] http://fivethirtyeight.com/datalab/what-percentage-of-state-...


> In order to be the more attractive alternative to the state lottery, bookies pay 600 to 1.

I don't disagree with you, but I would modify my claim of empiricism to mean "in the absence of a state lottery".

There's more than one reason the bookmaker ought to be more generous, which relate to the benefit of state backing:

you can be sure the rake is not going to be used for the public good, and

if the bookmaker takes heavy losses and bankrupts, you can't be sure you'll get your big win even after beating the odds.

See also e.g. http://www.bbc.co.uk/news/uk-england-29543448 You can be sure the casino wouldn't have cared to comment on Phil Ivey's methods until they were facing a significant net loss. Would they have returned his stake if he was unlucky enough to make a loss? Would they have bothered to sue if he had won a small amount? He suffers here also for the extent of his luck.


At least the revenue generated from the lottery (in Texas, not sure about other states) go to pay for education.


GA and FL as well. The problem, though, is that some states replaced instead of supplemented education funding with lottery revenues. So what could've been a nice boon (normal budget $xx million/year, with lottery add $yy million/year) meant that nothing actually changed (for education). It may, depending on the state, have freed up tax revenue to go to other projects.


Of course that's how it works. That's how it always works. Any political promise of "Raise $xxx million for $y" is easily ignorable because money is fungible.


It is well documents that lottery income replaces standard taxes and does not increase the money spent of education or senior citizens. So it has switched taxing all tax payers and puts the burden on people who play the lottery, which are vastly made up of the poor population of the states.

http://taxvox.taxpolicycenter.org/2014/09/09/nearly-states-p...


You can't remove demand by Government decree. We have tried that with alcohol, drugs, etc. It never works.


Government isn't selling drugs and only a few states still sell alcohol. Government shouldn't sell Cigarettes, Alcohol, Drugs or Lottery.


it's a lot harder to run an illegal lottery at any meaningful scale, though


Texas resident here. That claim is dubious. http://www.kcbd.com/story/14579932/kcbd-investigates-is-the-...


Really? Or does it just mean that money from general taxes that would have been spent on education is spent on something else?


It's both. Lottery money replaced other tax revenue, which freed that revenue to be either a) returned to the people in the form of lower taxes; or b) spent on other projects.

You'd need to look at when the lottery proceeds were first used for education and track the changes since to know which one actually happened.


Either way, isn't that exactly the same as saying lottery money goes into a general fund just like other taxes?


This sort of frame of reference juggling can be used to say any money is used for any purpose anywhere.

Most lottery money is earmarked for education, infrastructure improvement, etc. The effect it has on any other portion of the budget notwithstanding - it's a fact that lotteries bring in substantial amounts of income.


Yes, that's my point. Money is fungible, so the lottery is effectively just a general tax and benefits all things that are paid for by taxes, not just school children.


Not if the money is earmarked - you're making an unstated assumption that, say, if 5M is going into education, and a lottery starts up and brings in 5M more for a total of 10M, that the original 5M must be repurposed elsewhere.

That's not necessarily true in the first place, and what's more it depends on the appropriations rules in the jurisdiction.


I'm making that assumption because I saw exactly that happen in New York. The lottery money is earmarked, sure, but it simply replaces money that otherwise would have been allocated from the general fund. You could just as well earmark the lottery money for sanitation, cut the sanitation budget, and then put the money towards schools or other uses.


And the other 49 states and DC/PR?

Once again - what you're implying happens in all cases doesn't necessarily happen in all cases. That's literally my whole point :)


Here in DC it just goes directly into the general fund :)

I understand what you're getting at, but a lottery is really not a great way to fund education. I'd much prefer a less regressive form of taxation.


My favorite definiton of the lottery = a tax on the innumerate. I wish I could claim that.


Here's the Boston Globe source article for the Time piece.

* http://www.boston.com/news/local/massachusetts/articles/2012...

And a couple of investigative pieces the Globe had run previously:

* http://www.boston.com/news/local/massachusetts/articles/2011...

* http://www.boston.com/news/local/massachusetts/articles/2011...

A fun quote from the first piece they ran:

Mark Fettig of Tennessee, one of the top 10 winners during the May rolldown week, urged the Globe not to write a story at all, saying “it would be immoral’’ to attract more people to Cash WinFall and potentially dilute the winnings of current players.


It bothers me how the article implies that they were doing something wrong. They figured out a trick to the system and used it to their benefit.


Exactly. Also, lotteries and gambling are all about who can come up with the best strategy to game the system within a prescribed set of written rules. Like everything else in life, it's a puzzle. What's the point of any game if it's all chance and no strategy?


I don't think that's generally assumed. Gambling is random; its exciting to risk and win. There doesn't have to be any strategy at all. What 'strategy' are all those grandmas using at the nickel slots?


That's why those grandmas lose money most of the time. One day a smart grandma will figure out how to game those machines too; it's an open-ended puzzle left to the world. They may build a better machine, and the world will again build a better grandma over time.

The world and economy is a system with rules and ethics, and entrepreneurs game that system within those rules and ethical bounds. Ping-pong wasn't first played with the intention of having back-spins and side-spins, but spin balls are perfectly within the written rules and are supposed to confuse and defeat your opponent.

If you want to have an edge at rock-paper-scissors, it's all about statistically analyzing and gaming your opponent, because humans are extremely bad at being uniformly random. There are tournaments for this. It's just humans being intelligent beings.

These students are gaming the lottery just the same.

Rules are rules; game and engineer the hell out of anything within those bounds, I say. Make the world an interesting place.


I don't understand why the lottery commission would know and not stop this. If they are guaranteed to win I think that is the same thing as the state have a guaranteed loss.


Not really. The guaranteed wins (presumably done by buying enough tickets to cover a large proportion of the available number space) would be taken at the expense of either any coincidental winners or at the expense of the rollover.

Lotteries are designed to take their cut from the tickets bought - some proportion of the money from tickets then goes to the prize pot. More tickets sold means more money for the lottery organisation, regardless of who buys those tickets.

So the loser in this case was the "lucky" lottery player, who would have found that, had they won, they had to share their prize with these guys.


But just like every casino, the house always wins. The more tickets sold, the more money the lottery makes. This is why despite knowing the flaws in the system, it doesn't get fixed, they don't care... in fact, it's in their favor to ignore it because those attempting to exploit the flaw only line the lottery's pockets more. It's more profitable for them to ignore it and hope that as little ruckus as possible draws attention to this corruption.


This is from 2012, probably should include in the title.


The card counting rings mentioned in the article have been going on for decades. Edward Thorp, while a math professor at MIT, was the first to do a rigorous analysis of card counting.

http://en.wikipedia.org/wiki/Edward_O._Thorp


"While most students at [MIT] use their powers for good [...] others are busily using their prodigious math skills to" win the lottery.

Interesting morals on display by the author.

Further: "While the students’ actions are not illegal, state treasurer Steven Grossman, who oversees the lottery, finally stopped the game this year."

I expected the last part to say they'd filed charges against the students. Since they didn't (because their activity wasn't illegal), the state treasurer made the right decision to stop the game.

I'm not impressed by this author's writing skill.


Doesn't that mean that the lottery was losing money? How is that even possible?


If I understand correctly, when there is no winner the prize is rolled over the next day. The technique involves playing these days specifically, and getting a big enough coverage of the numbers.

That means that if the (global) prize becomes big enough, then for this day the lottery gives out more money that it cashed, but it's actually money they accumulated during the days there was no grand prize winner.

So in average the lottery doesn't lose money.


It's related to jackpots, so no.

Lets say a lottery is set up to pay out 60% of money in over a year, but those payouts are done by 40% 9 weeks out of 10, and 240% the 10th week. If you only play the lottery on the 10th week, then your EV is +140%, even though the overall EV is still 60%.

From the article it was a version of this that happened.


I'm quite sure this scenario was modeled extensively and they were well aware of it and had worked to ensure they were still profitable (or perhaps more so) even if the flaw was exploited.


The state takes their money off the top, and the rest goes towards the jackpot. They make money as long as people play the game. They might have made more money by hyping the higher jackpot to get more ticket sales, but it obviously wasn't worth their time.

The people rushing to buy tickets because of that jackpot have the same chances of winning as they would without MIT students buying tickets. They have a reduced amount of time to try and win it, since MIT winning will lower the jackpot, but they're probably better off for it by not throwing their money at the game as much.

The people really losing out are the ones who buy tickets no matter what the jackpot is, and that's only if they win after the jackpot has been lowered. They may have won more money, but if that was their concern, they shouldn't have been playing when the payout was so low.


This story (and the math behind it) is discussed at length in "How Not to Be Wrong: The Power of Mathematical Thinking" by Jordan Ellenberg. I highly recommend it, the other stories in it are equally enlightening.


It takes a fair amount of man power to buy hundreds of thousands dollars of lottery tickets. Especially if you have to fill out forms and submit them to a cashier. I've heard of consortiums hiring people to do such.


So I suppose there's a sort of intergenerational underground community of advantage players at MIT that these exploits come out of? Hard to imagine that MIT just happens to be the source of unrelated rings.


In terms of these guys and the poker players no. But you'd be amazed how many people from the MIT Assassins' Guild go into computer security.


Reading between the lines, there is a very strong hint that lottery officials violated lottery rules to enable the exploitation, possibly for indirect benefits. What the students is very similar to how card counting is supposed to not work: they violated the maximum bet. And lottery officials let them, against the rule of the lottery system.

It seems like no real harm done though: they guaranteed themselves winnings, causing the jackpot to never grow, before anyone else bought tickets against the larger jackpot. So in a sense they just stomped the game before it started, no other players got screwed out of their chance at any existing jackpot.


As I understand it, there was no rule against the maximum number of tickets (and therefore no maximum bet). But somebody buying up all the tickets did increase the total revenue of the lottery, which is presumably something that lottery officials are supposed to encourage (if there's any advertising for it, at least), and may have been rewarded for.


Hah, what can't these people do.


This is overrated.

Grant that you can make 15-20% ROI on your 600K investment, however, you could have 95% chance to lose all of it and 5% chance to hit jackpot and win say 26 mil. Your expected value is high but no one would play 600K like that, unless you are some rogue hedge fund manager.

You might well invest it in stock market, which has better Risk-reward ratio.


You are totally missing the point. This one lottery game was set up in a way that if you spend enough money at exactly the right time you are mathematically guaranteed to make more money than you spent. You can't guarantee success in the stock market and certainly not 20% ROI in a few days.

It isn't like they just threw $600k at the lottery blindly hoping for a payout. This was a mathematical analysis.


There was still the massive risk of the strategy being replicated by someone else and then both parties would lose money.


You're not going to make 15-20% in one shot and unlikely to make it yearly, on the stock market.


Where does your 95% figure come from? Although the article doesn't give specific details, it does say "it would only take about $100,000 in tickets to guarantee success", which I take to mean 100% chance you will win the jackpot.




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