Why the House Always Wins

A lottery ticket for the EuroMillions jackpot ...

Image by AFP/Getty Images via Daylife

I hate the lottery, and frequently (and, I admit, obnoxiously) call it the “stupid tax” in a pointless effort to persuade lottery playing friends and family to call it quits. By now I should know better, because it never works.  The usual response is that they win enough small amounts to offset their ongoing loses, so it’s worth it. The logic of the argument looks like this:

If I spend X dollars on the lottery over the next 10 years, and I win approximately X dollars sporadically over the same time period, then I maintain X dollar availability to eventually win the massive Z prize. 

The problems with this argument are (1) your meager winnings are not really offsetting your loses – that’s a delusion you’ve bought into to avoid facing the amount of actual loss, and (2) you can’t strategically position yourself to capitalize on an entirely random occurrence. You could play every day for your whole life and not improve your chances of winning the big prize, which means that the amount of your actual loss over time will eventually be even bigger than the loss you’re unwilling to face now (see point #1).

I just came across a study coming out in the Journal of Gambling Studies (yes, that’s an actual journal) that touches on some of these points in the arena of online gambling.  Researchers analyzed 27 million online poker hands and found an interesting result: the more hands a player wins, the less money they’re likely to collect.

The reason, the researchers believe, is that multiple wins are more likely to yield small stakes—but to get those wins, you have to play long enough, and the longer you play the more likely you are to suffer occasional big loses.  Turns out, those occasional loses are enough to negate and often exceed the wins.  

One takeaway from the study is that online gamblers misjudge the variance and uncertainty of the payoffs derived from taking risks, mainly because multiple small wins inflate the players’ sense of success.

The resemblance I see to playing the lottery is that lottery players misjudge the long-term losses associated with taking risk because small wins feed a delusion that winnings will eventually outpace loses—particularly if the “big one” comes through.   

In both cases, the same conclusion is reached: the house always wins.  It’s a statistical guarantee voided only if you’re one of the fortunate few who takes a big pot and calls it quits right then and there. Play on, and the house has you again.

Of course, if people gambled and played the lottery for rational reasons, there’d be no reason to have the discussion, because rationally there would be no reason to keep playing. It’s the emotional jolt that compels the gambler, and no statistical argument can compare to that.


2 thoughts on “Why the House Always Wins

  1. Then there is another group of people who play for fun….odds be damned.

    I know that statistically, I’ve got something like a .00000001% chance of winning (depending on the game). Not worth putting any money into on an ‘investment decision’ basis.

    But I’ll throw a couple bucks at it every now and again for kicks. Checking the numbers or scratching off the ticket provide the same sort of cheap thrill that a candy bar might. “What if I win??”

    And it isn’t bad for your waistline either.

  2. Pingback: Neuro News Nanos - Ryan Sager - Neuroworld - True/Slant

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