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The "No-Lose" Lottery
December 2, 2010 7:43 AM   Subscribe

A simple idea: take an ordinary savings account, but instead of paying interest to account holders, hold a lottery to see who gets the lump sum. Freakonomics Radio investigates Prize-linked savings (PLS) accounts (Part 1, Part 2), which combine two things that seem completely at odds with each other: saving money and gambling. In Highland Park, MI, PLS accounts have been very successful at converting "non-savers" into "savers". Why hasn't it caught on in the US? It's illegal in most states, of course.
posted by Jonathan Harford (33 comments total) 12 users marked this as a favorite

 
We've had this in the UK for years in the form of premium bonds, government backed and very popular. Winnings from 25GBP to a cool million.
posted by Markb at 7:56 AM on December 2, 2010


In the UK, the government has been running a scheme like this since 1956. Its very popular.
posted by memebake at 7:56 AM on December 2, 2010


I'm sure it would be run as ethically as regular gambling.
posted by Reasonably Everything Happens at 7:57 AM on December 2, 2010 [4 favorites]


on preview, doh
posted by memebake at 7:57 AM on December 2, 2010


This is the coolest thing I've seen all week, thanks! I'm thinking now about how this idea could be applied to aspects of user interface design and computer security.
posted by jasonhong at 7:59 AM on December 2, 2010


I'm thinking now about how this idea could be applied to aspects of user interface design...

The more times you click "OK" the more likely the program is to suddenly start working.
posted by DU at 8:01 AM on December 2, 2010 [6 favorites]


that's because it's gambling... where you only lose the interest on your deposit. you could increase savings rates among low income people simply by increasing access to legitimate banking services by say, having a "Post Bank" And thereby also cut out the payday/check cashing rackets as well...

the idea implicit in the post article is that being poor (or at least making under $40K) is the result of a certain morality, one that sees easy winnings as preferable to careful thrift. very victorian. the astonishing thing about low family savings rates in the U.S. is how many people making over $250K are living paycheck to paycheck.
posted by ennui.bz at 8:01 AM on December 2, 2010 [10 favorites]


This can't possibly go wrong, or be abused.
posted by clvrmnky at 8:10 AM on December 2, 2010


Another good way to encourage saving is to inspire trust in both the system and the future.
posted by DU at 8:10 AM on December 2, 2010 [8 favorites]


Ooh, I wish I had put the Wikipedia article on Premium Bonds in the post. (Not least because of the adorable paragraph on ERNIE, the anthropomorphic random number generator.)
posted by Jonathan Harford at 8:12 AM on December 2, 2010


I think it's interesting that the prevailing opinion seems to be that we need to trick poor people into saving with promises of fantastical (but extremely improbable) rewards.

I see this working with Medicare in the future: you don't get to visit a doctor, but there is a small chance that you'll be rewarded with eternal life if you keep paying into the system.

Needs "futuristic dystopia" tag.
posted by Avenger at 8:20 AM on December 2, 2010 [2 favorites]


I consider this morally superior to state-run lotteries in every single way.
posted by SMPA at 8:32 AM on December 2, 2010 [2 favorites]


The UK money saving expert website has a nice article and calculator on UK premium bonds that illustrates the pitfalls of such a scheme.

Many people often think "I'm likely to get about 1.5% and there's a small chance of winning a million", the main point is this isn't correct. You're actually likely to get quite a lot less than 1.5% and there's a negligible chance of winning a million. Take a look at the chances, but beware, it ain't pretty reading.
posted by Jakey at 8:33 AM on December 2, 2010


I did have a similar idea recently:

The cost of the US census is about $15 billion (about $50 per person counted), mostly because so few people send in their form and the census has to hire people to go door-to-door, sometimes many times to the same house.

What if everyone that sent in their form had a 1 in 10 chance of winning $100? With those odds, everybody will personally know multiple people who won in the previous census.

Sure, probably would never fly, but I bet it would cut the cost of the census in half.
posted by justkevin at 8:39 AM on December 2, 2010 [12 favorites]


On one hand, I like the idea -- anything to encourage saving should, in theory, help the financial sector overall. I've even theorized an insurance plan where the insured is responsible for their reserves and the insurance company only provides stop-loss, thus encouraging people to save for a rainy day while also keeping the safety net of insurance. Savings discourages going into debt for things, and that helps the economy.

On the other hand, banks today don't know what to do with money in savings. The AFTRA/SAG credit union is asking depositors to cash out their accounts because they've got too much money. In order for banks to pay interest on savings they have to be able to lend that money to somebody else and earn interest on it, but if nobody's borrowing because of too-high interest rates then the bank can't pay interest on what they've got in savings accounts. I looked at a savings account with US Bank, and they're paying something like 0.10%, 0.25% on their savings accounts. I thought it was a typo, but no, that's a fraction of a percent on accounts with $25,000 or more, half-a-percent if you have half a million. I think my PayPal account earns more than that. If a bank is going to pay out a lottery based on interest, they're going to need to make sure they can keep paying interest on all that money in their accounts.
posted by AzraelBrown at 8:45 AM on December 2, 2010 [1 favorite]


The average American household snaps up about $500 annually in lottery ticket

Wow.

As someone who saves way more than the national average, I could get behind this, especially with interest rates being what they are right now.
posted by madajb at 8:47 AM on December 2, 2010


Gamification in everything. Reminds me of the lottery for taking daily medication.
posted by telegraph at 8:47 AM on December 2, 2010


I've had premium bonds for a while now, I use it for "immediate access" money. Because interest rates are so miserable lots of people have been buying them because there isn't much interest to lose, consequently the chances of winning anything has got even worse. My nett interest rate for the past 6 months has been miniscule.

It is however better than the lottery because you get an entry every month and your capital back, that (and because the government do it) is presumably why it isn't called gambling.
posted by epo at 9:07 AM on December 2, 2010


Ha! How Orwellian. Reminds of how I used to win at "patient bingo" while "donating" plasma. Every half-hour they'd draw a hospital bed number and if it was you, you got an extra $5! I'd win all the time. Then I'd take my extra $5 and buy a shasta and a couple tacos. mmmm...shasta....
posted by Baby_Balrog at 9:07 AM on December 2, 2010 [2 favorites]


Jonathan Harford Ooh, I wish I had put the Wikipedia article on Premium Bonds in the post. (Not least because of the adorable paragraph on ERNIE, the anthropomorphic random number generator.)

E.R.N.I.E by Madness (1980)
I am the bringer of your wishes,
Your saviour from doing work,
The washer of your dishes,and
You'll still get you mid-day perk.
Estate agent,
Your mansion and pot of gold,
All the home comforts,
Before you get too tired and old.

One more try,
Try to get what you've never had,
Five more bob,
For the whole world that can't be bad.

We can't all win,
Look it's happening,
The future's looking not so bleak,

A thousand winners every week.
A thousand winners every week.
posted by memebake at 9:44 AM on December 2, 2010 [2 favorites]


Why would it be illegal to run something like this in a place that allows gambling?

I can go to a casino in Las Vegas and set up a standing bet in Keno. And the casino could keep running that bet until I'm out of whatever amount of money I gave them, even if I'm back home in California while the game is happening. Isn't the PLS account just a more sophisticated version of the same concept?
posted by roll truck roll at 9:46 AM on December 2, 2010


This is Pakistan's most respectable form of gambling. It's called the prize bond there and has spawned a massive sub-industry. You get a very respectable looking document, which looks like a large banknote in your denomination (eg Rs 1,000, 25,000, etc) with a unique number. Because actually buying a prize bond from government sources is an immense hassle, agents deal in buying, selling and claiming prizes on commission. The commission varies depending partly on the number on the bond -- lucky numbers, or those with numerological significance are more expensive. So is buying bonds in series of numbers, or in duplicate numbers. It's great fun and a great waste of time and money. I know any number of people who, before the next draw, will buy bonds in the hope of a payout, and then sell them off again the following day.
posted by tavegyl at 10:00 AM on December 2, 2010 [2 favorites]


A similar (and recently announced) idea was a speed camera lottery. The idea is that the speed camera photographs all license plates and enters those not speeding into a lottery for the winnings from those who do speed. Privacy implications aside, it's a pretty neat (and effective) idea.
posted by msbutah at 10:10 AM on December 2, 2010


I can go to a casino in Las Vegas and set up a standing bet in Keno. And the casino could keep running that bet until I'm out of whatever amount of money I gave them, even if I'm back home in California while the game is happening. Isn't the PLS account just a more sophisticated version of the same concept?

Not quite, because with a PLS account your capital does not disappear, whereas with the standing bet it will.
posted by memebake at 10:26 AM on December 2, 2010


I don't think we need more "saving", I think we need more INVESTING, and not in whatever delivers the highest rate of return, but in enterprises that provide a benefit above and beyond the Return on Investment. But saving for YOUR future is by definition an intensely greedy act.

I vehemently disagree with the sentiment that this is "morally superior to state-run lotteries" since it provides ZERO benefit to anybody outside of those who "play the game" and win, and that's the only justification lotteries have to exist.
posted by oneswellfoop at 10:29 AM on December 2, 2010 [2 favorites]


Sounds fun -- but not as fun as a Tontine.
posted by grumblebee at 10:30 AM on December 2, 2010


I like the idea. Savings accounts earn dick for interest why not take a shot at some ral money while still saving money?
posted by zzazazz at 10:31 AM on December 2, 2010


I just listened to part II of this last night, and there are a couple of points that deserve highlighting. First of all, the biggest barrier to this is the monopolist state lotteries, which can divert up to 60% of the proceeds to the rake (as opposed to ~10% for the typical slot machine); this makes the lottery a massive revenue stream for state governments. Second, and reinforcing the first point, this state revenue stream would be threatened by the no-lose lottery/PLS regimes. By opposing these, they act like the monopolists they are, in other words.

I came away from this with some moderate feelings of support towards PLS programs, but more than that I came away feeling utter repulsion for the sick and corrupt state lottery systems. No wonder it's usually Republicans that push these things-- it's the ultimate regressive (semi-) tax system; while spending among economic groups is similar in real dollar terms, as a percentage of income it's the poorest people that are putting the most money into them.
posted by norm at 10:34 AM on December 2, 2010 [2 favorites]


I love games a great deal, but only when they're optional. I am suspicious how folk are trying to turn everything into a game now. I don't want to earn achievements with my bank, and I don't want the interest in whatever meager money I manage to save, when I do manage to make enough money to save, to be put into some horrendous lottery system.
posted by JHarris at 10:43 AM on December 2, 2010 [1 favorite]


Stupid people are stupid.
posted by LordSludge at 3:30 PM on December 2, 2010


"No wonder it's usually Republicans that push these things"

Citation please? Having to go back and determine which party voted to allow each of the 44 states in the US that currently have lotteries seems like a time consuming exercise, so I was wondering if you had the statistics available you could link me to.

Regardless, I don't see many Democrats clamoring to eliminate this ultimate regressive tax when they are in control of one of those 44 states. The government (R or D, doesn't matter) is addicted to the money and really doesn't care if it's regressive or not.
posted by TheFlamingoKing at 3:54 PM on December 2, 2010


Heh, yeah, no. In my state it was Republicans against video gaming terminals at race tracks, against the casinos we're building now, and, back in the day, it was a Democrat (admittedly a Reagan Democrat) who pushed for the lottery. The states without lotteries, moreover, are with one exception largely dominated by Republicans politically: Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah, and Wyoming.

And the reason a lottery is worse, morally, than the prime bond idea is simple: lotteries are a wealth transfer from a largely poor population that clearly has decision making problems to the population at large, and my government pushes it on them in a way that any private company would be hounded to the ends of the earth for trying in that same jurisdiction. And it further obscures the connection between revenues and expenditures - we literally base our budget in part on the presumed stupidity of the masses.
posted by SMPA at 5:07 PM on December 2, 2010


In the states that I'm familiar with-- Minnesota, currently, but previously Oregon and Oklahoma-- lotteries are seen by Republicans as ways to increase taxes without breaking no-tax-increase pledges and therefore as essentially free money. That state gambling can be used to cut into native american revenue streams is seen as, essentially, a bonus. My remark was based on my anecdotal understanding as opposed to national platform, although it sure seems consistent with the overall Republican stance of making all state funding be as regressive as possible.

Note that this is not necessarily a Kanye-esque "Republicans Hate Poor People"*; I recall from various political economy treatises that many GOP thinkers have openly supported the "services rendered" model of taxation, making those who receive more services proportionately more responsible for funding them, over the Democratic advocacy of "ability to pay".

*Ok, I admit it. I think Republicans hate poor people.
posted by norm at 6:17 PM on December 2, 2010


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