It's a game anyone can join, with an equal shot to win and become spectacularly wealthy. It is, of course, The Lottery.
In this episode, we'll be looking at how money from lotteries are actually distributed, why it is at times controversial, and what we can learn from it about human decision making.
[00:00:04] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a game.
[00:00:25] It’s a game that anyone can play, it’s a game that anyone can win, a game that everyone has the same chance of winning, and what’s more, it's a game that can make you spectacularly wealthy.
[00:00:37] It is, of course, The Lottery.
[00:00:40] Now, perhaps you play the lottery. Perhaps you’ve won.
[00:00:44] Even if you’ve never played the lottery, you probably have some idea about how they work, but in this episode we’ll go a little deeper.
[00:00:53] We’ll look at how the money from lotteries is actually distributed, why this is at times controversial, we’ll look at what we can learn from the lottery about human decision making, and hear about some people who have scooped the jackpot.
[00:01:08] So, let’s not waste a minute, and get right into it.
[00:01:14] On November 6th last year, November 6th of 2022, a 30-year old man with a long black ponytail walked into a petrol station called Joe's Service Center in Altadena, California.
[00:01:29] He picked up a lottery ticket and chose his numbers: 10, 33, 41, 47, 56, and 10 for the powerball.
[00:01:41] The odds of winning the jackpot were small, 1 in over 300 million, but Edwin Castro no doubt crossed his fingers, hoping that that night might just be his lucky night.
[00:01:58] The draw for the numbers was slightly delayed, but a day later the winning numbers were announced.
[00:02:04] 10, 33, 41, 47, 56, and 10 for the Powerball. Castro’s numbers exactly.
[00:02:15] The jackpot was over 2 billion dollars.
[00:02:20] Now, almost nothing was known about Edwin Castro, as he preferred to remain anonymous.
[00:02:27] His cover was blown, however, when another person came forward and claimed that the winning ticket was actually his, although Castro has been fighting this tooth and nail. I guess you would if you stood to lose almost a billion dollars, which was what he was left with after paying his tax bill.
[00:02:45] When Edwin Castro became the biggest lottery winner in history, his life changed overnight. He bought a $25 million house, sports cars, and hired a team of bodyguards.
[00:03:00] He might have been in the headlines, but he wasn’t the only winner that night. The federal government collected almost a billion dollars in taxes, the Californian school system hundreds of millions in new funding.
[00:03:14] Even the owner of the gas station that sold the ticket pocketed a cool one million dollars.
[00:03:21] His advice to Castro was “be smart, watch your money, no matter how much money you have, don't go with bad people”.
[00:03:31] Time will only tell whether Castro heeds his advice, whether he follows these wise words, but one thing is for sure: his life will never be the same again.
[00:03:43] Now, lotteries exist in countries all over the world.
[00:03:48] Statistically speaking, there is probably some form of lottery where you live, and you probably know something about how they work.
[00:03:56] In case you need a reminder of what a lottery is, a lottery is a form of gambling that involves the drawing of numbers at random for a prize.
[00:04:07] Participants buy tickets, and the winners are selected through a random draw.
[00:04:13] Prizes are normally cash, money, and they can be very large.
[00:04:18] Of course, the size of the prize depends on how many people buy tickets, but the general idea is that it’s possible to win smaller sums of money for getting some but not all of the numbers right, while the top prize will be a life-changing amount of money.
[00:04:35] In terms of the history of the lottery, it might surprise you to find out that lotteries in some form or other have existed for over two thousand years.
[00:04:46] There are records of a form of lottery that date back to the second century BC in Han Dynasty China. Even back then they were used to finance major state projects, major works that needed the financial support of the population.
[00:05:03] And they were a pretty efficient way to do this.
[00:05:06] Clearly, a ruler who tells their population, ok, we need everyone to contribute a Euro because we need to build a big bridge they are not going to be very popular. And someone who raises taxes isn’t going to be so popular either.
[00:05:20] But someone who says, ok, we are going to run a competition. You can pay a Euro to enter it and you might win a million Euros.
[00:05:29] Well, humans are humans, and people in ancient China liked that idea as much as Californians do in the 21st century, and there are records of this kind of state-organised lottery that go back to the Han Dynasty, 100 years before the birth of Julius Caesar.
[00:05:49] And some form of lotteries can be found all over the world, throughout history. The ancient Romans had one, the Low Countries had them in The Middle Ages.
[00:05:58] Queen Elizabeth I of England even established a state lottery in the 16th century to pay for major infrastructure projects, and the founding fathers of the United States used lotteries to raise money for everything from founding universities to buying cannons during the revolutionary war. They were an important part of nation building.
[00:06:20] Thomas Jefferson even wrote, about lotteries, “far from being immoral, they are indispensable to the existence of man.”
[00:06:29] And today they are big business, with hundreds of millions of people playing the lottery each week.
[00:06:37] So, the first question to address is how likely is it that you will win the lottery if you play?
[00:06:45] If we’re talking about Edwin Castro type amounts, of winning the US Powerball, the odds are incredibly low, one in over 300 million.
[00:06:57] To put it another way, if you live to the age of 80, you are 20,000 times more likely to be struck by lightning during your lifetime than you are to win the Powerball jackpot.
[00:07:11] And most people who win don’t win large amounts of money. In fact, as far as the UK national lottery is concerned, the average prize is £9, around €10.
[00:07:25] This is skewed by the fact that there are tens of thousands of smaller winners every week, winning as little as a £2 ticket, which is not exactly what most people think of when they think about “winning the lottery”.
[00:07:40] To state the obvious, if you play the lottery, like any form of gambling, statistically speaking you will lose money.
[00:07:48] In fact, if we look at the lottery purely through the lens of “what is a cost efficient way of gambling”, what gambling options mean you are most likely to make money, lotteries are some of the worst ways to make money.
[00:08:03] Betting on Blackjack can return up to 99%, meaning that for every €10 you bet, you get on average €9.90 back.
[00:08:14] Roulette is between 95% and 97%, betting on sports typically returns 90-95%, Slot machines tend to be between 80-95%, scratch cards between 60-75%, but betting on the lottery?
[00:08:32] It can be as little as 40%, so for every €10 of lottery tickets you buy, statistically you’ll get €4 back.
[00:08:43] And if you live in a country that taxes lottery winnings, well, the amount will be even less.
[00:08:51] And to underline, this is certainly not me advocating other forms of gambling, far from it.
[00:08:58] As is abundantly clear, the house always wins, but lotteries are typically down there with the least efficient forms of gambling when it comes to winning money.
[00:09:09] So, if the money doesn’t go back into the pockets of people who play the lottery, where does it go?
[00:09:17] Well, much like in Elizabethan England and Han Dynasty China, a large chunk of the money gambled goes back into government projects.
[00:09:27] With the UK lottery, just over 50% goes towards the prize winners, 25% goes towards “good causes” as set out by the British parliament. 12% goes directly to the UK government as a tax. 4% goes to the shops that sell the tickets, and 5% goes to the private company that runs the National Lottery, which is allowed to make a profit of a total of 1% of total sales.
[00:09:57] The numbers to focus on here are firstly the 50% number, so only 50% of the total amount wagered goes into the pot for winners.
[00:10:08] And then the second number, the 25% that goes towards “good causes”.
[00:10:15] Of these “good causes”, 40% of the money is awarded to health, education, environment and charitable causes, 20% goes to Sports, 20% to Arts and 20% to Heritage.
[00:10:30] And in the UK at least, these “good causes” do a lot of good, from buying books for schools through to helping refugees assimilate in Britain.
[00:10:42] Because of how popular the Lottery is in Britain, a lot of money goes into these good causes, €2 billion a year to be precise.
[00:10:52] And it’s a similar story in most countries around the world where lotteries are allowed: they are heavily regulated by the government and there is a requirement that a sizable chunk of the money raised through ticket sales goes into some form of community project.
[00:11:09] But, and there is always a but, as you may know, one of the main criticisms of the lottery, at least the UK national lottery, is that some of these “good causes” involve projects that are unlikely to be used by people who play the lottery.
[00:11:27] In the UK, there is a clear inverse correlation between income and national lottery participation. In other words, the higher your income, the less likely you are to play the lottery.
[00:11:41] Yet the National Lottery continues to fund projects like the National Opera House in London, giving money to organisations used by people who typically do not participate in the lottery.
[00:11:54] Indeed, there have been several reports that have looked at exactly where national lottery funding goes, both in terms of geographical area and type of organisation, and found that areas with the highest rates of participation in the lottery are often the least likely to receive lottery funding.
[00:12:14] And this, at least in the UK, is one of the main criticisms of how the funding works, that it is a tax on those who are least able to pay it that goes towards projects enjoyed by those who need the least financial support, and further contributes to inequality.
[00:12:32] Essentially, it is a stealth tax on the poor.
[00:12:36] But, and here’s another but, the counterargument to this is that by characterising it as such one assumes that people buying lottery tickets are in some way being tricked, taxed against their will.
[00:12:52] As far as the UK is concerned, most surveys show that people have a pretty good idea about where their lottery ticket money is going, and they are very happy with it. 24% of lottery players in the UK say that a major reason for playing the lottery was that “it goes to good causes”.
[00:13:13] And this brings us on to a particularly interesting element of the national lottery, and it’s what economists, psychologists and sociologists believe we can conclude about human behaviour and decision making from the global popularity of the lottery.
[00:13:30] Firstly, there is an economic theory called the Rational Choice Theory, which suggests that human beings make rational choices based on the information available to them.
[00:13:42] If you only have one Euro in your pocket and you can choose to buy either a bottle of water or a chocolate bar, if you are hungry you’ll buy the chocolate bar and if you are in the middle of a desert and thirsty you’ll buy the bottle of water. You make the best decision, the rational decision.
[00:14:02] The National Lottery in some ways, disproves this theory, or at least shows that humans make decisions irrationally, based on emotions rather than reason. As we discussed a few minutes ago, the return from the lottery is one of the worst forms of gambling, so participation in the lottery is confusing to economists because it is, in economic terms, irrational.
[00:14:29] But this brings us onto our second point, which is an economic theory called “Expected Utility Theory”.
[00:14:38] This theory suggests people make decisions based on the expected outcomes of these decisions. In other words, they consider the utility, or overall satisfaction, that each potential outcome would provide, weighing this by the probability of each outcome occurring.
[00:14:58] This probably sounds like economic jargon, so let me explain it more plainly.
[00:15:05] When taking any decision, economists suggest that a person considers all of the benefits of that decision. When it comes to playing the lottery, the benefits might include winning money, but also include the enjoyment and thrill of seeing whether your numbers come up, they include the ritual of doing something every week, perhaps with friends or family.
[00:15:29] They also include enjoying the choice of numbers. Perhaps that’s enjoying choosing new numbers every week, perhaps it is remembering the same dates or numbers that have a particular significance for them. And, as you heard earlier, for one in four lottery ticket buyers in the UK, there is also the knowledge that a proportion of their money goes towards good causes.
[00:15:53] So, when viewed through the eyes of this particular economic theory, playing the lottery can be very rational indeed.
[00:16:02] Now, our third economic theory to look at the lottery through is the sunk cost fallacy.
[00:16:09] This is the idea that many people tend to continue to do something because they have already spent time or money doing something and they don’t want it to be wasted, even though, rationally speaking, they would be better off simply stopping.
[00:16:25] As far as the lottery is concerned, it is a prime example of the sunk cost fallacy. Many players who play every week state that the reason to do so is to recoup, to get back, some of the money that they have spent in the past, thinking that if they haven’t won anything for months, their numbers are bound to come up soon and they will be able to recoup their losses.
[00:16:51] As you’ll know, the probability of winning does not depend on how many times you have lost in the past. A person who has spent €10,000 on the lottery and not won a cent will have exactly the same probability of winning as someone who has never played. Yet the first person will often think that they must win soon, hence they keep on buying tickets to try to recoup their earlier losses.
[00:17:17] So, that is the sunk cost fallacy.
[00:17:20] Now, I want to finish this episode with a story about one of the most famous lottery winners in the UK, a story with a perhaps surprising and confusing twist.
[00:17:33] In 2002, when he was only 19 years old, a man called Michael Carrol won almost £10 million, something like €20 million in today’s money.
[00:17:45] When he won the jackpot, he was working as a rubbish collector, and he even needed to open his first bank account to receive the money; he didn’t have a bank account before.
[00:17:57] Needless to say, the win changed his life overnight. One day he didn’t have a bank account, the next he had one with a seven-digit balance.
[00:18:10] He was completely hounded by the British tabloids, with stories of his life splashed all over the papers. There was, in fact, a lot of material.
[00:18:23] After he won, he splashed out on a large mansion, and held almost constant drink and drug fuelled parties with prostitutes.
[00:18:33] And things started to go downhill quickly for Michael Carrol.
[00:18:38] His wife left him, he was sent to prison for drink and drug related crimes.
[00:18:43] He was blackmailed repeatedly, and in one horrible incident criminals killed five of his dogs in an effort to get money from him.
[00:18:53] And the money started to run out. Indeed, 9 years later it was completely gone. He was declared bankrupt, he became homeless, and only later managed to get a job delivering coal on a minimum wage.
[00:19:09] So, what’s the story, the moral, the lesson here?
[00:19:13] Well, many newspapers were quick to point fingers and say, “what a terrible person, he must regret squandering this opportunity, he must live in a constant state of remorse, winning the lottery is a curse!”
[00:19:28] In fact, there is a somewhat happy ending to this tale.
[00:19:33] He got back together with his wife, and apparently lives a very happy life now, albeit a very different one.
[00:19:41] In an interview with one of the very tabloids that hounded him, he declared “I don’t look back with any regrets that’s for sure. It was 10 years of fun for a pound, you can’t go wrong with that. I wouldn’t want to turn the clock back. But I live a good, free lifestyle now and I’m happier because I’ve got my life back.”
[00:20:02] End quote.
[00:20:04] In other words, yes he is happy now, but no, he doesn’t regret a minute of the 10 years of lottery-fueled hedonism.
[00:20:14] Indeed, he even says that he still plays the lottery, hoping to win big again, but warned the journalist that “money is the root of all evil”.
[00:20:24] I’m not quite sure what to make of this, but I am sure that the story of Michael Carrol doesn’t fit neatly into any economist or psychologist’s model.
[00:20:35] OK then, that is it for today's little exploration of the lottery, how it works, the economic theories behind it, and a brief look at some of the lucky winners.
[00:20:47] I hope it's been an interesting one, and that you've learnt something new.
[00:20:51] As always, I would love to know what you thought about this episode.
[00:20:55] Have you ever won anything in the lottery?
[00:20:57] Do you know anyone who has? What are some stories, happy or unhappy, of lottery winners from your country?
[00:21:05] I would love to know, so let’s get this discussion started.
[00:21:09] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:17] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:22] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:04] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a game.
[00:00:25] It’s a game that anyone can play, it’s a game that anyone can win, a game that everyone has the same chance of winning, and what’s more, it's a game that can make you spectacularly wealthy.
[00:00:37] It is, of course, The Lottery.
[00:00:40] Now, perhaps you play the lottery. Perhaps you’ve won.
[00:00:44] Even if you’ve never played the lottery, you probably have some idea about how they work, but in this episode we’ll go a little deeper.
[00:00:53] We’ll look at how the money from lotteries is actually distributed, why this is at times controversial, we’ll look at what we can learn from the lottery about human decision making, and hear about some people who have scooped the jackpot.
[00:01:08] So, let’s not waste a minute, and get right into it.
[00:01:14] On November 6th last year, November 6th of 2022, a 30-year old man with a long black ponytail walked into a petrol station called Joe's Service Center in Altadena, California.
[00:01:29] He picked up a lottery ticket and chose his numbers: 10, 33, 41, 47, 56, and 10 for the powerball.
[00:01:41] The odds of winning the jackpot were small, 1 in over 300 million, but Edwin Castro no doubt crossed his fingers, hoping that that night might just be his lucky night.
[00:01:58] The draw for the numbers was slightly delayed, but a day later the winning numbers were announced.
[00:02:04] 10, 33, 41, 47, 56, and 10 for the Powerball. Castro’s numbers exactly.
[00:02:15] The jackpot was over 2 billion dollars.
[00:02:20] Now, almost nothing was known about Edwin Castro, as he preferred to remain anonymous.
[00:02:27] His cover was blown, however, when another person came forward and claimed that the winning ticket was actually his, although Castro has been fighting this tooth and nail. I guess you would if you stood to lose almost a billion dollars, which was what he was left with after paying his tax bill.
[00:02:45] When Edwin Castro became the biggest lottery winner in history, his life changed overnight. He bought a $25 million house, sports cars, and hired a team of bodyguards.
[00:03:00] He might have been in the headlines, but he wasn’t the only winner that night. The federal government collected almost a billion dollars in taxes, the Californian school system hundreds of millions in new funding.
[00:03:14] Even the owner of the gas station that sold the ticket pocketed a cool one million dollars.
[00:03:21] His advice to Castro was “be smart, watch your money, no matter how much money you have, don't go with bad people”.
[00:03:31] Time will only tell whether Castro heeds his advice, whether he follows these wise words, but one thing is for sure: his life will never be the same again.
[00:03:43] Now, lotteries exist in countries all over the world.
[00:03:48] Statistically speaking, there is probably some form of lottery where you live, and you probably know something about how they work.
[00:03:56] In case you need a reminder of what a lottery is, a lottery is a form of gambling that involves the drawing of numbers at random for a prize.
[00:04:07] Participants buy tickets, and the winners are selected through a random draw.
[00:04:13] Prizes are normally cash, money, and they can be very large.
[00:04:18] Of course, the size of the prize depends on how many people buy tickets, but the general idea is that it’s possible to win smaller sums of money for getting some but not all of the numbers right, while the top prize will be a life-changing amount of money.
[00:04:35] In terms of the history of the lottery, it might surprise you to find out that lotteries in some form or other have existed for over two thousand years.
[00:04:46] There are records of a form of lottery that date back to the second century BC in Han Dynasty China. Even back then they were used to finance major state projects, major works that needed the financial support of the population.
[00:05:03] And they were a pretty efficient way to do this.
[00:05:06] Clearly, a ruler who tells their population, ok, we need everyone to contribute a Euro because we need to build a big bridge they are not going to be very popular. And someone who raises taxes isn’t going to be so popular either.
[00:05:20] But someone who says, ok, we are going to run a competition. You can pay a Euro to enter it and you might win a million Euros.
[00:05:29] Well, humans are humans, and people in ancient China liked that idea as much as Californians do in the 21st century, and there are records of this kind of state-organised lottery that go back to the Han Dynasty, 100 years before the birth of Julius Caesar.
[00:05:49] And some form of lotteries can be found all over the world, throughout history. The ancient Romans had one, the Low Countries had them in The Middle Ages.
[00:05:58] Queen Elizabeth I of England even established a state lottery in the 16th century to pay for major infrastructure projects, and the founding fathers of the United States used lotteries to raise money for everything from founding universities to buying cannons during the revolutionary war. They were an important part of nation building.
[00:06:20] Thomas Jefferson even wrote, about lotteries, “far from being immoral, they are indispensable to the existence of man.”
[00:06:29] And today they are big business, with hundreds of millions of people playing the lottery each week.
[00:06:37] So, the first question to address is how likely is it that you will win the lottery if you play?
[00:06:45] If we’re talking about Edwin Castro type amounts, of winning the US Powerball, the odds are incredibly low, one in over 300 million.
[00:06:57] To put it another way, if you live to the age of 80, you are 20,000 times more likely to be struck by lightning during your lifetime than you are to win the Powerball jackpot.
[00:07:11] And most people who win don’t win large amounts of money. In fact, as far as the UK national lottery is concerned, the average prize is £9, around €10.
[00:07:25] This is skewed by the fact that there are tens of thousands of smaller winners every week, winning as little as a £2 ticket, which is not exactly what most people think of when they think about “winning the lottery”.
[00:07:40] To state the obvious, if you play the lottery, like any form of gambling, statistically speaking you will lose money.
[00:07:48] In fact, if we look at the lottery purely through the lens of “what is a cost efficient way of gambling”, what gambling options mean you are most likely to make money, lotteries are some of the worst ways to make money.
[00:08:03] Betting on Blackjack can return up to 99%, meaning that for every €10 you bet, you get on average €9.90 back.
[00:08:14] Roulette is between 95% and 97%, betting on sports typically returns 90-95%, Slot machines tend to be between 80-95%, scratch cards between 60-75%, but betting on the lottery?
[00:08:32] It can be as little as 40%, so for every €10 of lottery tickets you buy, statistically you’ll get €4 back.
[00:08:43] And if you live in a country that taxes lottery winnings, well, the amount will be even less.
[00:08:51] And to underline, this is certainly not me advocating other forms of gambling, far from it.
[00:08:58] As is abundantly clear, the house always wins, but lotteries are typically down there with the least efficient forms of gambling when it comes to winning money.
[00:09:09] So, if the money doesn’t go back into the pockets of people who play the lottery, where does it go?
[00:09:17] Well, much like in Elizabethan England and Han Dynasty China, a large chunk of the money gambled goes back into government projects.
[00:09:27] With the UK lottery, just over 50% goes towards the prize winners, 25% goes towards “good causes” as set out by the British parliament. 12% goes directly to the UK government as a tax. 4% goes to the shops that sell the tickets, and 5% goes to the private company that runs the National Lottery, which is allowed to make a profit of a total of 1% of total sales.
[00:09:57] The numbers to focus on here are firstly the 50% number, so only 50% of the total amount wagered goes into the pot for winners.
[00:10:08] And then the second number, the 25% that goes towards “good causes”.
[00:10:15] Of these “good causes”, 40% of the money is awarded to health, education, environment and charitable causes, 20% goes to Sports, 20% to Arts and 20% to Heritage.
[00:10:30] And in the UK at least, these “good causes” do a lot of good, from buying books for schools through to helping refugees assimilate in Britain.
[00:10:42] Because of how popular the Lottery is in Britain, a lot of money goes into these good causes, €2 billion a year to be precise.
[00:10:52] And it’s a similar story in most countries around the world where lotteries are allowed: they are heavily regulated by the government and there is a requirement that a sizable chunk of the money raised through ticket sales goes into some form of community project.
[00:11:09] But, and there is always a but, as you may know, one of the main criticisms of the lottery, at least the UK national lottery, is that some of these “good causes” involve projects that are unlikely to be used by people who play the lottery.
[00:11:27] In the UK, there is a clear inverse correlation between income and national lottery participation. In other words, the higher your income, the less likely you are to play the lottery.
[00:11:41] Yet the National Lottery continues to fund projects like the National Opera House in London, giving money to organisations used by people who typically do not participate in the lottery.
[00:11:54] Indeed, there have been several reports that have looked at exactly where national lottery funding goes, both in terms of geographical area and type of organisation, and found that areas with the highest rates of participation in the lottery are often the least likely to receive lottery funding.
[00:12:14] And this, at least in the UK, is one of the main criticisms of how the funding works, that it is a tax on those who are least able to pay it that goes towards projects enjoyed by those who need the least financial support, and further contributes to inequality.
[00:12:32] Essentially, it is a stealth tax on the poor.
[00:12:36] But, and here’s another but, the counterargument to this is that by characterising it as such one assumes that people buying lottery tickets are in some way being tricked, taxed against their will.
[00:12:52] As far as the UK is concerned, most surveys show that people have a pretty good idea about where their lottery ticket money is going, and they are very happy with it. 24% of lottery players in the UK say that a major reason for playing the lottery was that “it goes to good causes”.
[00:13:13] And this brings us on to a particularly interesting element of the national lottery, and it’s what economists, psychologists and sociologists believe we can conclude about human behaviour and decision making from the global popularity of the lottery.
[00:13:30] Firstly, there is an economic theory called the Rational Choice Theory, which suggests that human beings make rational choices based on the information available to them.
[00:13:42] If you only have one Euro in your pocket and you can choose to buy either a bottle of water or a chocolate bar, if you are hungry you’ll buy the chocolate bar and if you are in the middle of a desert and thirsty you’ll buy the bottle of water. You make the best decision, the rational decision.
[00:14:02] The National Lottery in some ways, disproves this theory, or at least shows that humans make decisions irrationally, based on emotions rather than reason. As we discussed a few minutes ago, the return from the lottery is one of the worst forms of gambling, so participation in the lottery is confusing to economists because it is, in economic terms, irrational.
[00:14:29] But this brings us onto our second point, which is an economic theory called “Expected Utility Theory”.
[00:14:38] This theory suggests people make decisions based on the expected outcomes of these decisions. In other words, they consider the utility, or overall satisfaction, that each potential outcome would provide, weighing this by the probability of each outcome occurring.
[00:14:58] This probably sounds like economic jargon, so let me explain it more plainly.
[00:15:05] When taking any decision, economists suggest that a person considers all of the benefits of that decision. When it comes to playing the lottery, the benefits might include winning money, but also include the enjoyment and thrill of seeing whether your numbers come up, they include the ritual of doing something every week, perhaps with friends or family.
[00:15:29] They also include enjoying the choice of numbers. Perhaps that’s enjoying choosing new numbers every week, perhaps it is remembering the same dates or numbers that have a particular significance for them. And, as you heard earlier, for one in four lottery ticket buyers in the UK, there is also the knowledge that a proportion of their money goes towards good causes.
[00:15:53] So, when viewed through the eyes of this particular economic theory, playing the lottery can be very rational indeed.
[00:16:02] Now, our third economic theory to look at the lottery through is the sunk cost fallacy.
[00:16:09] This is the idea that many people tend to continue to do something because they have already spent time or money doing something and they don’t want it to be wasted, even though, rationally speaking, they would be better off simply stopping.
[00:16:25] As far as the lottery is concerned, it is a prime example of the sunk cost fallacy. Many players who play every week state that the reason to do so is to recoup, to get back, some of the money that they have spent in the past, thinking that if they haven’t won anything for months, their numbers are bound to come up soon and they will be able to recoup their losses.
[00:16:51] As you’ll know, the probability of winning does not depend on how many times you have lost in the past. A person who has spent €10,000 on the lottery and not won a cent will have exactly the same probability of winning as someone who has never played. Yet the first person will often think that they must win soon, hence they keep on buying tickets to try to recoup their earlier losses.
[00:17:17] So, that is the sunk cost fallacy.
[00:17:20] Now, I want to finish this episode with a story about one of the most famous lottery winners in the UK, a story with a perhaps surprising and confusing twist.
[00:17:33] In 2002, when he was only 19 years old, a man called Michael Carrol won almost £10 million, something like €20 million in today’s money.
[00:17:45] When he won the jackpot, he was working as a rubbish collector, and he even needed to open his first bank account to receive the money; he didn’t have a bank account before.
[00:17:57] Needless to say, the win changed his life overnight. One day he didn’t have a bank account, the next he had one with a seven-digit balance.
[00:18:10] He was completely hounded by the British tabloids, with stories of his life splashed all over the papers. There was, in fact, a lot of material.
[00:18:23] After he won, he splashed out on a large mansion, and held almost constant drink and drug fuelled parties with prostitutes.
[00:18:33] And things started to go downhill quickly for Michael Carrol.
[00:18:38] His wife left him, he was sent to prison for drink and drug related crimes.
[00:18:43] He was blackmailed repeatedly, and in one horrible incident criminals killed five of his dogs in an effort to get money from him.
[00:18:53] And the money started to run out. Indeed, 9 years later it was completely gone. He was declared bankrupt, he became homeless, and only later managed to get a job delivering coal on a minimum wage.
[00:19:09] So, what’s the story, the moral, the lesson here?
[00:19:13] Well, many newspapers were quick to point fingers and say, “what a terrible person, he must regret squandering this opportunity, he must live in a constant state of remorse, winning the lottery is a curse!”
[00:19:28] In fact, there is a somewhat happy ending to this tale.
[00:19:33] He got back together with his wife, and apparently lives a very happy life now, albeit a very different one.
[00:19:41] In an interview with one of the very tabloids that hounded him, he declared “I don’t look back with any regrets that’s for sure. It was 10 years of fun for a pound, you can’t go wrong with that. I wouldn’t want to turn the clock back. But I live a good, free lifestyle now and I’m happier because I’ve got my life back.”
[00:20:02] End quote.
[00:20:04] In other words, yes he is happy now, but no, he doesn’t regret a minute of the 10 years of lottery-fueled hedonism.
[00:20:14] Indeed, he even says that he still plays the lottery, hoping to win big again, but warned the journalist that “money is the root of all evil”.
[00:20:24] I’m not quite sure what to make of this, but I am sure that the story of Michael Carrol doesn’t fit neatly into any economist or psychologist’s model.
[00:20:35] OK then, that is it for today's little exploration of the lottery, how it works, the economic theories behind it, and a brief look at some of the lucky winners.
[00:20:47] I hope it's been an interesting one, and that you've learnt something new.
[00:20:51] As always, I would love to know what you thought about this episode.
[00:20:55] Have you ever won anything in the lottery?
[00:20:57] Do you know anyone who has? What are some stories, happy or unhappy, of lottery winners from your country?
[00:21:05] I would love to know, so let’s get this discussion started.
[00:21:09] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:17] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:22] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:04] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a game.
[00:00:25] It’s a game that anyone can play, it’s a game that anyone can win, a game that everyone has the same chance of winning, and what’s more, it's a game that can make you spectacularly wealthy.
[00:00:37] It is, of course, The Lottery.
[00:00:40] Now, perhaps you play the lottery. Perhaps you’ve won.
[00:00:44] Even if you’ve never played the lottery, you probably have some idea about how they work, but in this episode we’ll go a little deeper.
[00:00:53] We’ll look at how the money from lotteries is actually distributed, why this is at times controversial, we’ll look at what we can learn from the lottery about human decision making, and hear about some people who have scooped the jackpot.
[00:01:08] So, let’s not waste a minute, and get right into it.
[00:01:14] On November 6th last year, November 6th of 2022, a 30-year old man with a long black ponytail walked into a petrol station called Joe's Service Center in Altadena, California.
[00:01:29] He picked up a lottery ticket and chose his numbers: 10, 33, 41, 47, 56, and 10 for the powerball.
[00:01:41] The odds of winning the jackpot were small, 1 in over 300 million, but Edwin Castro no doubt crossed his fingers, hoping that that night might just be his lucky night.
[00:01:58] The draw for the numbers was slightly delayed, but a day later the winning numbers were announced.
[00:02:04] 10, 33, 41, 47, 56, and 10 for the Powerball. Castro’s numbers exactly.
[00:02:15] The jackpot was over 2 billion dollars.
[00:02:20] Now, almost nothing was known about Edwin Castro, as he preferred to remain anonymous.
[00:02:27] His cover was blown, however, when another person came forward and claimed that the winning ticket was actually his, although Castro has been fighting this tooth and nail. I guess you would if you stood to lose almost a billion dollars, which was what he was left with after paying his tax bill.
[00:02:45] When Edwin Castro became the biggest lottery winner in history, his life changed overnight. He bought a $25 million house, sports cars, and hired a team of bodyguards.
[00:03:00] He might have been in the headlines, but he wasn’t the only winner that night. The federal government collected almost a billion dollars in taxes, the Californian school system hundreds of millions in new funding.
[00:03:14] Even the owner of the gas station that sold the ticket pocketed a cool one million dollars.
[00:03:21] His advice to Castro was “be smart, watch your money, no matter how much money you have, don't go with bad people”.
[00:03:31] Time will only tell whether Castro heeds his advice, whether he follows these wise words, but one thing is for sure: his life will never be the same again.
[00:03:43] Now, lotteries exist in countries all over the world.
[00:03:48] Statistically speaking, there is probably some form of lottery where you live, and you probably know something about how they work.
[00:03:56] In case you need a reminder of what a lottery is, a lottery is a form of gambling that involves the drawing of numbers at random for a prize.
[00:04:07] Participants buy tickets, and the winners are selected through a random draw.
[00:04:13] Prizes are normally cash, money, and they can be very large.
[00:04:18] Of course, the size of the prize depends on how many people buy tickets, but the general idea is that it’s possible to win smaller sums of money for getting some but not all of the numbers right, while the top prize will be a life-changing amount of money.
[00:04:35] In terms of the history of the lottery, it might surprise you to find out that lotteries in some form or other have existed for over two thousand years.
[00:04:46] There are records of a form of lottery that date back to the second century BC in Han Dynasty China. Even back then they were used to finance major state projects, major works that needed the financial support of the population.
[00:05:03] And they were a pretty efficient way to do this.
[00:05:06] Clearly, a ruler who tells their population, ok, we need everyone to contribute a Euro because we need to build a big bridge they are not going to be very popular. And someone who raises taxes isn’t going to be so popular either.
[00:05:20] But someone who says, ok, we are going to run a competition. You can pay a Euro to enter it and you might win a million Euros.
[00:05:29] Well, humans are humans, and people in ancient China liked that idea as much as Californians do in the 21st century, and there are records of this kind of state-organised lottery that go back to the Han Dynasty, 100 years before the birth of Julius Caesar.
[00:05:49] And some form of lotteries can be found all over the world, throughout history. The ancient Romans had one, the Low Countries had them in The Middle Ages.
[00:05:58] Queen Elizabeth I of England even established a state lottery in the 16th century to pay for major infrastructure projects, and the founding fathers of the United States used lotteries to raise money for everything from founding universities to buying cannons during the revolutionary war. They were an important part of nation building.
[00:06:20] Thomas Jefferson even wrote, about lotteries, “far from being immoral, they are indispensable to the existence of man.”
[00:06:29] And today they are big business, with hundreds of millions of people playing the lottery each week.
[00:06:37] So, the first question to address is how likely is it that you will win the lottery if you play?
[00:06:45] If we’re talking about Edwin Castro type amounts, of winning the US Powerball, the odds are incredibly low, one in over 300 million.
[00:06:57] To put it another way, if you live to the age of 80, you are 20,000 times more likely to be struck by lightning during your lifetime than you are to win the Powerball jackpot.
[00:07:11] And most people who win don’t win large amounts of money. In fact, as far as the UK national lottery is concerned, the average prize is £9, around €10.
[00:07:25] This is skewed by the fact that there are tens of thousands of smaller winners every week, winning as little as a £2 ticket, which is not exactly what most people think of when they think about “winning the lottery”.
[00:07:40] To state the obvious, if you play the lottery, like any form of gambling, statistically speaking you will lose money.
[00:07:48] In fact, if we look at the lottery purely through the lens of “what is a cost efficient way of gambling”, what gambling options mean you are most likely to make money, lotteries are some of the worst ways to make money.
[00:08:03] Betting on Blackjack can return up to 99%, meaning that for every €10 you bet, you get on average €9.90 back.
[00:08:14] Roulette is between 95% and 97%, betting on sports typically returns 90-95%, Slot machines tend to be between 80-95%, scratch cards between 60-75%, but betting on the lottery?
[00:08:32] It can be as little as 40%, so for every €10 of lottery tickets you buy, statistically you’ll get €4 back.
[00:08:43] And if you live in a country that taxes lottery winnings, well, the amount will be even less.
[00:08:51] And to underline, this is certainly not me advocating other forms of gambling, far from it.
[00:08:58] As is abundantly clear, the house always wins, but lotteries are typically down there with the least efficient forms of gambling when it comes to winning money.
[00:09:09] So, if the money doesn’t go back into the pockets of people who play the lottery, where does it go?
[00:09:17] Well, much like in Elizabethan England and Han Dynasty China, a large chunk of the money gambled goes back into government projects.
[00:09:27] With the UK lottery, just over 50% goes towards the prize winners, 25% goes towards “good causes” as set out by the British parliament. 12% goes directly to the UK government as a tax. 4% goes to the shops that sell the tickets, and 5% goes to the private company that runs the National Lottery, which is allowed to make a profit of a total of 1% of total sales.
[00:09:57] The numbers to focus on here are firstly the 50% number, so only 50% of the total amount wagered goes into the pot for winners.
[00:10:08] And then the second number, the 25% that goes towards “good causes”.
[00:10:15] Of these “good causes”, 40% of the money is awarded to health, education, environment and charitable causes, 20% goes to Sports, 20% to Arts and 20% to Heritage.
[00:10:30] And in the UK at least, these “good causes” do a lot of good, from buying books for schools through to helping refugees assimilate in Britain.
[00:10:42] Because of how popular the Lottery is in Britain, a lot of money goes into these good causes, €2 billion a year to be precise.
[00:10:52] And it’s a similar story in most countries around the world where lotteries are allowed: they are heavily regulated by the government and there is a requirement that a sizable chunk of the money raised through ticket sales goes into some form of community project.
[00:11:09] But, and there is always a but, as you may know, one of the main criticisms of the lottery, at least the UK national lottery, is that some of these “good causes” involve projects that are unlikely to be used by people who play the lottery.
[00:11:27] In the UK, there is a clear inverse correlation between income and national lottery participation. In other words, the higher your income, the less likely you are to play the lottery.
[00:11:41] Yet the National Lottery continues to fund projects like the National Opera House in London, giving money to organisations used by people who typically do not participate in the lottery.
[00:11:54] Indeed, there have been several reports that have looked at exactly where national lottery funding goes, both in terms of geographical area and type of organisation, and found that areas with the highest rates of participation in the lottery are often the least likely to receive lottery funding.
[00:12:14] And this, at least in the UK, is one of the main criticisms of how the funding works, that it is a tax on those who are least able to pay it that goes towards projects enjoyed by those who need the least financial support, and further contributes to inequality.
[00:12:32] Essentially, it is a stealth tax on the poor.
[00:12:36] But, and here’s another but, the counterargument to this is that by characterising it as such one assumes that people buying lottery tickets are in some way being tricked, taxed against their will.
[00:12:52] As far as the UK is concerned, most surveys show that people have a pretty good idea about where their lottery ticket money is going, and they are very happy with it. 24% of lottery players in the UK say that a major reason for playing the lottery was that “it goes to good causes”.
[00:13:13] And this brings us on to a particularly interesting element of the national lottery, and it’s what economists, psychologists and sociologists believe we can conclude about human behaviour and decision making from the global popularity of the lottery.
[00:13:30] Firstly, there is an economic theory called the Rational Choice Theory, which suggests that human beings make rational choices based on the information available to them.
[00:13:42] If you only have one Euro in your pocket and you can choose to buy either a bottle of water or a chocolate bar, if you are hungry you’ll buy the chocolate bar and if you are in the middle of a desert and thirsty you’ll buy the bottle of water. You make the best decision, the rational decision.
[00:14:02] The National Lottery in some ways, disproves this theory, or at least shows that humans make decisions irrationally, based on emotions rather than reason. As we discussed a few minutes ago, the return from the lottery is one of the worst forms of gambling, so participation in the lottery is confusing to economists because it is, in economic terms, irrational.
[00:14:29] But this brings us onto our second point, which is an economic theory called “Expected Utility Theory”.
[00:14:38] This theory suggests people make decisions based on the expected outcomes of these decisions. In other words, they consider the utility, or overall satisfaction, that each potential outcome would provide, weighing this by the probability of each outcome occurring.
[00:14:58] This probably sounds like economic jargon, so let me explain it more plainly.
[00:15:05] When taking any decision, economists suggest that a person considers all of the benefits of that decision. When it comes to playing the lottery, the benefits might include winning money, but also include the enjoyment and thrill of seeing whether your numbers come up, they include the ritual of doing something every week, perhaps with friends or family.
[00:15:29] They also include enjoying the choice of numbers. Perhaps that’s enjoying choosing new numbers every week, perhaps it is remembering the same dates or numbers that have a particular significance for them. And, as you heard earlier, for one in four lottery ticket buyers in the UK, there is also the knowledge that a proportion of their money goes towards good causes.
[00:15:53] So, when viewed through the eyes of this particular economic theory, playing the lottery can be very rational indeed.
[00:16:02] Now, our third economic theory to look at the lottery through is the sunk cost fallacy.
[00:16:09] This is the idea that many people tend to continue to do something because they have already spent time or money doing something and they don’t want it to be wasted, even though, rationally speaking, they would be better off simply stopping.
[00:16:25] As far as the lottery is concerned, it is a prime example of the sunk cost fallacy. Many players who play every week state that the reason to do so is to recoup, to get back, some of the money that they have spent in the past, thinking that if they haven’t won anything for months, their numbers are bound to come up soon and they will be able to recoup their losses.
[00:16:51] As you’ll know, the probability of winning does not depend on how many times you have lost in the past. A person who has spent €10,000 on the lottery and not won a cent will have exactly the same probability of winning as someone who has never played. Yet the first person will often think that they must win soon, hence they keep on buying tickets to try to recoup their earlier losses.
[00:17:17] So, that is the sunk cost fallacy.
[00:17:20] Now, I want to finish this episode with a story about one of the most famous lottery winners in the UK, a story with a perhaps surprising and confusing twist.
[00:17:33] In 2002, when he was only 19 years old, a man called Michael Carrol won almost £10 million, something like €20 million in today’s money.
[00:17:45] When he won the jackpot, he was working as a rubbish collector, and he even needed to open his first bank account to receive the money; he didn’t have a bank account before.
[00:17:57] Needless to say, the win changed his life overnight. One day he didn’t have a bank account, the next he had one with a seven-digit balance.
[00:18:10] He was completely hounded by the British tabloids, with stories of his life splashed all over the papers. There was, in fact, a lot of material.
[00:18:23] After he won, he splashed out on a large mansion, and held almost constant drink and drug fuelled parties with prostitutes.
[00:18:33] And things started to go downhill quickly for Michael Carrol.
[00:18:38] His wife left him, he was sent to prison for drink and drug related crimes.
[00:18:43] He was blackmailed repeatedly, and in one horrible incident criminals killed five of his dogs in an effort to get money from him.
[00:18:53] And the money started to run out. Indeed, 9 years later it was completely gone. He was declared bankrupt, he became homeless, and only later managed to get a job delivering coal on a minimum wage.
[00:19:09] So, what’s the story, the moral, the lesson here?
[00:19:13] Well, many newspapers were quick to point fingers and say, “what a terrible person, he must regret squandering this opportunity, he must live in a constant state of remorse, winning the lottery is a curse!”
[00:19:28] In fact, there is a somewhat happy ending to this tale.
[00:19:33] He got back together with his wife, and apparently lives a very happy life now, albeit a very different one.
[00:19:41] In an interview with one of the very tabloids that hounded him, he declared “I don’t look back with any regrets that’s for sure. It was 10 years of fun for a pound, you can’t go wrong with that. I wouldn’t want to turn the clock back. But I live a good, free lifestyle now and I’m happier because I’ve got my life back.”
[00:20:02] End quote.
[00:20:04] In other words, yes he is happy now, but no, he doesn’t regret a minute of the 10 years of lottery-fueled hedonism.
[00:20:14] Indeed, he even says that he still plays the lottery, hoping to win big again, but warned the journalist that “money is the root of all evil”.
[00:20:24] I’m not quite sure what to make of this, but I am sure that the story of Michael Carrol doesn’t fit neatly into any economist or psychologist’s model.
[00:20:35] OK then, that is it for today's little exploration of the lottery, how it works, the economic theories behind it, and a brief look at some of the lucky winners.
[00:20:47] I hope it's been an interesting one, and that you've learnt something new.
[00:20:51] As always, I would love to know what you thought about this episode.
[00:20:55] Have you ever won anything in the lottery?
[00:20:57] Do you know anyone who has? What are some stories, happy or unhappy, of lottery winners from your country?
[00:21:05] I would love to know, so let’s get this discussion started.
[00:21:09] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:17] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:22] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
