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Even though the stock markets fell again, one person (or group) earned a lot of money last week: the still undetermined single ticket holder who won the Mega Millions lottery. The winner or winners win a jackpot worth an estimated $ 1.54 billion (or $ 878 million).
Just a few days ago, the race for purchase tickets highlighted some fundamental aspects of human nature: money does not just concern wealth and people do not understand probability. In addition, the sense of control can cause each of us to take risks that we would not run otherwise. Even if you have not bought a Mega Million ticket and you never would, watching the lottery fever by other people should teach you these investment lessons, as few others can.
During the 2016 fiscal year, Americans spent $ 80.5 billion in lottery tickets. This is partly because a ticket gives a taste of hope: experiments in the Netherlands show that nearly two out of three people prefer to spread their purchase over more than one day, probably to enjoy prospect of winning even longer.
If someone told you that your chances of winning the lottery had just increased from 1 in 100,000 to 1 in 100,000, you would probably be slightly interested. If, however, you discover that the jackpot has just gone from $ 100,000 to $ 100,000,000, your pulse will probably speed up. The probabilities are pale and impersonal. The money is lively and emotional.
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The feeling of "someone is doomed to win, so it's up to me" is hard to shake.
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Businesses and governments have been exploiting this human quirk for centuries.
Before the issue of shares became a common means of attracting capital, companies often raised funds through lotteries. The Virginia Co., which financed the settlement of Jamestown and other first places in the American wilderness, was largely financed by the sale of lottery tickets in London and other British cities.
Governments have also financed their operations with lotteries, with most ticket buyers losing money. As Henry Fielding wrote in his play "The Lottery", created in London in 1732: "A lottery is an imposition on all the crazies of creation."
Lotteries have not become a flourishing business in the United States until a few decades ago, states allow people to choose their own numbers. In the 1970s, psychologist Ellen Langer, then from Yale University, offered to buy lottery tickets before the prizes were drawn. Holders claimed more than four times more money to sell a ticket they had chosen than to sell a ticket that had been randomly assigned to them.
It's probably because choosing a ticket yourself has charged it with a spark of your own personal magic. So, if it turns out to be the winner later, you will be even worse off having sold it. A person randomly assigned does not inspire the same regret if you sell it before it wins.
Not surprisingly, investors, whether they are professionals or individuals, tend to be much more likely to buy back shares that they previously sold for profit rather than for a loss. And traders who mistakenly believe that they partially control market movements get lower returns than those who do not.
Most of the time, winning the lottery is infinitely unlikely. But it is not impossible.
If many people do not choose their numbers independently, that is, if a lot of lottery players tend to choose the same numbers, then, in theory, a coordinated group of players, or a syndicate could buy enough tickets with unpopular numbers to hit the likely jackpot.
And often, people do not select numbers independently.
In early 2005, the number 53 was finally revealed to the Italian lottery after a drought of almost two years. The families were frenzied and had wagered a total of $ 4.5 billion on banknotes including this number, or more than $ 250 per household. (The final winners split about $ 770 million.) Some Italians would have mortgaged their homes or gone bankrupt after obsessively bet on the elusive figure.
A study of more than 16 million Swiss lottery tickets revealed that bettors had purchased more than 24,000 times number combinations diagonally across the banknote. they played the numbers that had won the previous draw 12,000 times. An analysis of 5.1 million lottery combinations in the Netherlands revealed that people chose their own birthday 21% of the time. Californians seem to be betting disproportionately on 9, 7, 3, 8, 11 and 6.
You can make money by betting on unpopular numbers, however, only in relatively small lotteries. According to mathematicians Aaron Abrams of Washington and Lee University and Skip Garibaldi, director of the Center for Communications Research in La Jolla, California.
Nevertheless, it's hard to shake the feeling that "someone is necessarily a winner, so that's maybe me": in a UK poll, 22% of people said that they would win the jackpot of the national lottery in their lifetime.
So it's not surprising that investors love to take an occasional flyer on an individual stock or an active fund: it's inevitable that someone is at the top of the charts, so that might as well be me.
Charles Clotfelter, an economist at Duke University, has been studying lotteries for decades. "Let the machine pick a random number for you," he says. "Your chances of winning with a given number are the same, but your chance of sharing your winnings is much lower on a random number because you are not playing on a diagonal or other scheme."
For investors too, determining the role that others are likely to do, and then persisting to do the opposite, is the best way to get ahead in the long run.
Write to Jason Zweig at [email protected]
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