Opposites May Attract: Lotteries and Savings

by Orly Lobel

Law professor Ian Ayres and management professor Barry Nalebuff suggest in Forbes magazine an interesting combination. Since Americans should be saving more, and spending less on lottery tickets and gambling -- more than $45 billion in total of spending – they suggest – “If you can't beat 'em, join 'em.” Their idea: create a new lotto that lets people have the excitement of a traditional lottery while they are investing for their retirement. They suggest that the lottery/savings ticket will look exactly like a regular lotto ticket, but half the revenue would be earmarked for personal retirement savings accounts. They argue that currently, lotteries are strongly regressive tax schemes:

“The folks buying lottery tickets should be supporting their own retirement, not schools. But if taking the money away from education proves too controversial, we could split the funding, with half going to schools and half going to the retirement account. Or, this could be the seed of a new federal lottery. We are willing to bet that lotto players would prefer a lottery where the house take goes to support them rather than the state budget. Alas, saving money is boring, but our new lotto savings plan offers an immediate reward and a way of committing yourself to save at least half of what you spend on lottery tickets. The result would be a guaranteed nest egg at retirement. Everyone but the state treasury would be a winner.”

Comments

[Brian]

Interesting. I wonder whether it is proper to assume, as I believe the Ayres-Nalabuff article does, that if a state switches from a straight lottery to a half lottery/half retirement account, people will continue to play the lottery at the same rate or in the same numbers. If the scheme were to change as proposed, and the state continued to put the same percentage of what it receives toward education (or some other governmental program), wouldn't the state reduce the pay off for a winning ticket? If that were the case, wouldn't some who play now no longer play? Wouldn't the people who would stop playing be the people who would rather gamble their entire dollar than gamble half of it and put the other half in an IRA? In other words, doesn't this scheme depend on convincing people (perhaps tricking people) into doing something they don't really want to do?