You hear and read stories about lottery winners all the time. Jackpot winners always make the news but the battlers who have been playing for 20 years without winning are relegated to the annals of obscurity. Based on this, it’s at least reasonable to think that ‘jackpotting’ can’t be that rare. The net effect is that winning seems quite possible.

The gambler’s fallacy & the illusion of control If you are playing roulette in a casino and ‘red’ has come up on all of the last 20 rolls, is the next number more likely to be red or black? The gambler’s fallacy (also known as the Monte Carlo fallacy) is the mistaken belief that because an outcome hasn’t occurred for a while it is (somehow) ‘due’ to occur. In the above example, committing the gambler’s fallacy would involve betting on black because it has to ‘come up’ in order to balance out the average (since we know that red is as likely to occur as black).

People frequently select lotto numbers based on how often they ‘come up’ (or rather, how long it’s been since they ‘came up’). A lot of people reason that this (somehow) gives them some control (over an entirely random process). This illusion of control is powerful enough to influence how someone thinks and sustain their irrational behaviour.

The sunk-cost fallacy This is an extremely pervasive cognitive bias. In the field of economics a sunk-cost is any previous expense which can’t be recovered, eg. a previous business expenditure on software, education, advertising etc. Because this cost has already occurred and can’t be recovered, it should no longer be factored in to future decisions. This is seldom the case.

The sunk-cost fallacy occurs when you make a decision based on the time and resources that you have already committed. In lotto, people will often persevere with what they sometimes know is economically irrational (buying more lotto tickets) simply because they have already invested so much. It’s not just lotto though, sunk-costs result in irrational decision making all the time.

Imagine you’ve bought tickets to a band that you really want to see, but on the day of the concert you come down with an illness. Even though you’re sick you decide to go anyway because ‘you’ve already paid for the tickets, so it would be a waste if you didn’t go’. Never mind that you’ve lost the money whether you go or not, and going may actually be an unenjoyable experience if you’re sick.

Or how about deciding to stay in a bad relationship because you’ve already put so much into it? Or going to a class that you don’t enjoy week after week simply because you’ve already paid for it? Or continuing to read a bad book or watch a bad movie just because you’re already half-way through?

Entertainment Importantly, there are some people that intuitively realize (consciously or not) that although playing lotto holds little or no economic value, it does have entertainment value. While you are unlikely to make a net monetary gain, you can get something else out of it. It would be absolutely ridiculous to assume that everyone is equally motivated by financial rewards and nothing else. People go to the movies, concerts, sports events etc. all the time with absolutely no expectation of financial gain. From a purely economic perspective this behaviour may seem difficult to account for. Fortunately, we know that humans are motivated by more than just money, and all kinds of seemingly ‘irrational’ behaviour can be explained away fairly easily.

So some lottery punters are seeking the thrill of the possibility of winning. Others are using it as a justification to temporarily fantasize about excessive wealth. For less than the cost of a cup of coffee, one can realistically spend several happy hours imagining ‘what if’. The excitement that one may experience from even having a chance of winning may be enough to justify the cost of a ticket or two.