Lottery Advertising and FOMO
Many people enjoy playing the lottery; it is a chance to fantasize about winning a fortune at the cost of a few bucks. But for others, it is a serious budget drain. Studies show that people with low incomes make up a disproportionate share of lottery players, and critics say the games are a disguised tax on those who can least afford it. State governments use lotteries to raise money for a wide range of public uses. In an era of anti-tax sentiment, the practice is popular and considered a painless form of taxation. The problem is that it also leads to dependence on a source of revenue that can only increase, and political leaders often feel pressure to grow those revenues.
This is the classic case of a public policy being driven by incentives and market forces rather than by thoughtful consideration of its overall impact and intended effects. Once a lottery is established, decisions and criticisms typically shift from the general desirability of the enterprise to its specific features, such as its role in generating compulsive gambling or its regressive impact on lower-income communities.
Because state lotteries are run as businesses with the goal of maximizing revenues, advertising campaigns necessarily target groups who will spend money on the tickets. That raises questions about whether these promotions are appropriate functions for government officials to perform, especially given the potential social impacts.
For example, lotteries are notorious for attracting poor people and their families who cannot manage sudden wealth well and sometimes end up losing it through bad financial choices or exploitation. Another concern is that lottery advertising targets individuals who are already susceptible to addictive behaviors.
Lottery marketing expertly capitalizes on the feeling that if you don’t play, you will miss out on an opportunity to dramatically improve your life. This type of marketing is known as FOMO (fear of missing out).
The basic premise of most lotteries is that the more tickets sold, the higher the prize pool will be. Then, when a winner is drawn, the total amount is split among those who have correctly picked all of the winning numbers. In many cases, the prize amount is less than the sum of all of the ticket sales, because expenses such as profits for the promoter and the costs of promotion are deducted from the pool.
In addition, lottery advertising can be a bit misleading when it comes to describing the chances of winning. A common strategy is to highlight the fact that “you have a better chance of winning the Powerball or Mega Millions” than the average American. But that number is misleading, because it does not account for the likelihood of hitting a single number. A better way to measure odds is to look at the expected value of a ticket. This is calculated by dividing the probability of winning by the total number of possible outcomes. It turns out that the actual probability of winning the prize is only about 2%, so it would take about 100 tickets to hit a jackpot of $1 billion.