Lotto as Options: Measuring the Silver Lining Effect
Multinational Finance Journal, 2022, vol. 26, no. 3/4, pp. 27–59
Scott M. Brown, University of Puerto Rico, USA
William T. Ziemba, University of British Columbia, Canada
Abstract:
Lotto tickets normally have negative expected value that sometimes turns positive with carryover or promotions. The purchase of lotto tickets by professional bettors has been shown to be rational economic behavior during these periods. The typical player is a reliably intransitive gambler known to play continually and is subject to a regressive tax when a professional bettor wins the jackpot. We perform an out-of-sample experiment that provides countervailing evidence of an economically significant silver lining for the typical player from easier-to-win small prizes and social benefits making lotto one type of investment for this demographic. We show the linkage between jackpot size and economic boom and bust in Puerto Rico. Lotto participation by the typical player is, if not rational, less irrational in terms of prospect, strain, networking, and consumption theories.
Keywords: Lotto; Prospect Theory; Portfolio Theory; Strain Theory; Networking Theory; Consumption Theory
Citation (Format 1)
Brown, Scott, and William T. Ziemba, 2022, Lotto as Options: Measuring the Silver Lining Effect , Multinational Finance Journal 26, 27-59.
Citation (Format 2)
Brown, S., Ziemba, W., 2022. Lotto as Options: Measuring the Silver Lining Effect . Multinational Finance Journal 26, 27-59.