How to Lose the Lottery Without Even Playing

For years, state-run lotteries would use the slogan “you can’t win if you don’t play.” That’s certainly accurate — if you don’t buy a ticket, your non-existent ticket won’t ever be worth anything than the nothing that it is. However, the slogan is misleading in that it omits the opportunity cost of playing; if you buy a $2 ticket, chances are, you’ll end up with a worthless piece of paper and you won’t have your $2 anymore. In other words, you can’t lose if you don’t play, either.

Except that you kind of can — if your neighbor wins.

By and large, you probably have an income similar to that of others in your neighborhood. You all pay similar rents, mortgages, and/or local taxes. You probably frequent the same stores, engage in the same activities, and even drive similar cars. Assuming the ratio of spending to income is, generally speaking, similar from person to person, you’re all in the same financial boat.

But when your neighbor’s lucky numbers come up in the lottery, that changes — and in some cases, dramatically and quickly.  And it turns out that their win may end up being your loss.

In 2018, the Federal Reserve Bank of Philadelphia published a paper, here (pdf) investigating what happens when someone to one’s neighbors when someone else in the neighborhood suddenly comes into a lot of money. The researchers wanted to know “whether relative income differences among peers can generate financial distress” — basically, whether the impulse to “keep up with the Joneses” is real, and to what degree. And what they found was that the phenomenon is not only real, it’s spectacular.

When someone wins a big cash prize, their neighbors — despite not having a similar increase in income — tend to increase their spending as well. As CNBC reports, “the research found that social pressure to compete with one’s neighbors on exciting new purchases is so great that it leads to a significant increase in both the amount of credit and mortgages people are willing to incur.” And as a result? If your neighbor wins the lottery, your odds of ending up in bankruptcy go up. As Vox notes, “specifically, every $1,000 in lottery winnings translates to a 2.4 percent higher probability of a nearby neighbor declaring bankruptcy.”

The lesson here, though, probably isn’t “play the lottery if you want to avoid bankruptcy.” Not only is your neighbor very unlikely to win, but even if they do — and you join them in that victory — bankruptcy may be in your future anyway: per Fortune, “the Certified Financial Planner Board of Standards says nearly a third of lottery winners declare bankruptcy—meaning they were worse off than before they became rich.”

 

Bonus fact: If you really like to gamble, you may want to go to Las Vegas, Nevada — in the U.S., at least, it’s the unofficial gambling capital. (The casinos are even open during a global pandemic.) However, if your game of choice is the state-run lottery Powerball, save yourself the airfare and hotel room fees, because you can’t play Powerball in Vegas. As the Las Vegas Review-Journal reported in 2017, “the lottery is against the law in Nevada because the gaming industry in the state does not want the competition.”

From the Archives: You Can’t Win if You Don’t Pay: Okay, okay, if all your neighbors are buying lottery tickets, and they’re all playing the same numbers? Maybe you should join them.