This guy is brilliant and a great speaker. I read his book, Stumbling On Happiness, and I highly recommmend it. The book is less economics focused than this talk, but better for dealing with subjective happiness choices in your life.

'compared with the past' example @ 11:20 is pretty good...

the 22:30 evolutionary biology theory is pretty good too

"... the highest priority was to eat and mate, today."

This is awesome.

Errors in estimating value can be due to the availability heuristic. Turns out that sometimes our brains aren't as smart as we are.

Also, check out the Aubrey DeGray cameo around the 32 minute mark.

Dan Gilbert doesn't understand Daniel Bernoulli's theory. He has over simplified it and removed the value of expected utility. Poor people make much better usage out of a lottery winning than rich people do. This utility value has to be factored into any equation placing a value judgment on an investment, even a lottery ticket.

When Dan insults lottery players, from a strictly numbers point of view, he's right, of course, but playing the lottery is not a strictly numbers kind of game; it's about utility. He doesn't take into account the actual value of winning and losing to the people who play.

Here's a demonstration of the difference utility adds to the simplistic equation of expected value:

You bet on a coin toss against an outstandingly wealthy opponent. If you win, your opponent will instantly triple your net worth, including your cash, assets, and salary. If you lose, you lose everything, including your job and employability.

The odds of winning are .5, and the reward is 3. Multiply these together, and you get 1.5, which means that you are getting 2:1 on your money. Looks good on paper. But of course not even economists would play this game --not even if the reward were raised to x10 or x100-- because the consequence of losing everything, though less in monetary value than the reward, is unthinkable, even compared to the relative gains from having x100 your wealth. The expected utility to you of your first "net worth" far exceeds the utility that the second and third would give you, so it's a bad bet.

Back to the lottery: if you lose a dollar, you don't noticeably lose any economic power, even if you play every week and lose $52/year. In other words, you lose a negligible amount of utility. You may even get $52 worth of enjoyment out of waiting for the results to come up, talking about it and bonding with your pool of coworkers, or daydreaming about the good life and getting distraction from the reality of your trailer park McJob life. But if you win something big, it will instantly end all money troubles for you and your whole family, maybe for generations to come. In other words, massive utility. It's not a stupid decision at all to buy a lottery ticket if you factor in utility.

Edit: Oh, and now that I've actually watched to the end, I see that someone in the Q&A made one of my points, but they both still missed the boat on the strictly financial utility of losing $1 to winning millions when you're poor.

While we're on the topic, it's worth mentioning that while lotteries are not a tax on the stupid, they are a tax on the poor. Of a low-income family, a middle income family and a high income family, who will get the most utility out of winning $1,000,000? Of course, the low-income family will. That's why low income families play the lottery more than people with more money.

Lotteries are designed to make money for whomever runs them, typically a government. So the government collects all this money, and in an ideal world, distributes it evenly in the form of social services for all. The end result is money being taken from the poor, and redistributed among the masses, regardless of income level. This is a tax on the poor.

In Georgia, lottery proceeds fund the HOPE scholarship. As long as you are a Georgia resident, have a 3.0 GPA or higher and attend a public state college (i.e. University of Georgia, Georgia Tech, etc) then it pays full tuition and gives you a $500 allowance per semester for books. Pretty good use of lottery money if you ask me (of course, I may be biased since it helped pay for my college as well).

The guys at the end with the beard makes me laugh: the reason people aren't taking you more seriously is because you look funny AND talk funny.

@Morganth

First: you and I agree that higher education is a good thing, and governments should subsidize it through taxes.

Next topic: Tax money should not be sought specifically from low-income families. The flow of tax dollars should always be from high to low, never from low to high.

OK.

Associating the glory of higher education with this particular tax (the Georgia State lotteries) is a hoax, a shell game. There's no real relationship whatsoever. The two issues are as separate as the $20 bill and the concert ticket mentioned in this video. If lotteries didn't exist, there would still be funding, and it would come from general revenue.

The government's choice to fund education through the lottery is just to put a pretty face on it. It went something like this: "OK, we the government can raise millions (billions?) of dollars consistently, and with almost zero overhead. Almost all the money will come from the poor though. How can we spin this? We'll have to use something people uniformly believe is the most excellent use for government spending: education."

Not convinced? Let's say the government declared that state universities were now entirely funded from general tax revenue, not the state lottery. The money would have to come from somewhere. Let's say it came from the defense budget. To make up the difference, the government decided to fund defense with the money from the same state lottery. There's no difference in terms of government income or expenditures, just the paint.

If lotteries subsidized the military, do you think people would still be lining up to defend the utility of lotteries?

(And yes, I know defense is funded at the federal level, not the state, but I'm Canadian, and I don't know what controversial things American states directly fund, so just go along with it, K?)

But if you win something big, it will instantly end all money troubles for you and your whole family, maybe for generations to come. In other words, massive utility. It's not a stupid decision at all to buy a lottery ticket if you factor in utility.

Why not just sit on the curb and maybe someone will happen to come by and give you a million dollars? You have to admit it's not impossible. What people fail to realize, is that the financial utility of losing $0 is MUCH less than the MASSIVE utility of being given a million dollars.

While sitting on the curb, you might even derive enjoyment from the distraction from your inexplicably 'trailer park McJob life,' or, if other people are sitting on the curb with you, you can bond with them over your common dreams.

^I like arguments that include the line, "You have to admit, it's not impossible." They basically mean, "I know exactly what's wrong with my argument, which is that it's practically impossible, and I could easily shoot holes through it myself but I'm just being an argumentative twat, so it doesn't matter. But I'll slog it out anyway because it might <sigh> add something to the thread:

People play lotteries because other people win. It happens all the time. It's on TV and in newspapers. It also happens at a fixed time (every week), so we know when to expect it, and can experience a period of anticipation while waiting for it. It gives people a way to indirectly talk with others in similar situations about their lack of funds without being annoying whiners and directly complaining about it.

>> ^chilaxe:
if other people are sitting on the curb with you, you can bond with them over your common dreams.

Yeah, like winning the lottery.

^The point is that there's an opportunity cost to everything, whether you're spending $0 in fantasy land or spending $1 dollar in fantasy land. Dreaming about virtually impossible handouts limits individuals' ability to draft rational dreams that can add concrete value to their situation.

Rather than tallying up the psychological benefits of fantasy, we'd do more good for society by advocating proactivity and intelligence so that people don't need to escape from their lives that contribute little to society or the economy in the first place .

^We're not talking about the same thing. You're saying in your opinion playing lotteries is detrimental to people's future wellbeing because without it, they might focus on more realistic ways to get out of poverty, like education or a career path whatever. Fair enough. I've got no comment.

I'm saying they're not stupid, which Dan Gilbert asserted. I'm saying that there's valid reasons in those people's minds for playing the lottery, and in terms of Bernoulli's equation (expected utility) as presented in the vid.

^You're applying Bernoulli's equation in such a way that mathematically stupid behavior and addiction becomes smart. Gilbert is applying it in such a way that mathematically stupid behavior and addiction is still stupid.

Perhaps one could say it's not a purist application of Bernoulli's equation, but Gilbert's application is useful for a context of socially valued outcomes, which is generally the context his audience is going to find useful.

For the record, my only point is that Gilbert simplified Bernoulli's equation too much, and made an error. Gilbert's application of part of the equation was completely invalid. Gilbert's argument was that lottery players are "stupid" because the expected value on the investment is less than 1. This was his only argument, and it is incorrect because he didn't account for utility, as Bernoulli did. Gilbert said nothing whatsoever about social value.

Bernoulli's equation itself specifically accounts for the relative usefulness of different amounts of money, and Gilbert chose to ignore that part. You can't selectively ignore certain factors in equations. They're balanced as they stand.

Gilbert's argument is that the lottery is an example of people's limited ability to compute odds (see ~6:00), and in this way is an example of irrational deviation from Bernoulli's equation.

Regardless of whether or not the financial cost is negligible or significant entertainment utility is gained, lottery players are still operating under a mistaken understanding of the odds, and thus a mistaken expected value.

As well, both of those utility objections are based on your personal weighing of many factors that are difficult to quantify or are unquantifiable, which seems to limit the practical application of this criticism.

True story: Two guys I know like to play a video screen game together at a particular bar. If you win up to a certain level, you receive a two free pitchers of beer. The pitchers of beer normally cost $30. In their experience, it takes about two hours and $40 worth of quarters to win the beer. Occasionally they win with less money in less time, and occasionally they give up before they win and forfeit all their money. Are they retards for playing it?

No. They would have bought the beer anyway, and whatever extra money is worth the fun they have playing the game together. They say, "It's $40 for the fun and conversation together, and the beer is free." To my eye, it's exactly the same with the lottery. As the questioner said towards the end of the vid, lottery players don't actually believe they're going to win. It's an entertainment cost because it makes them feel good, for whatever reason.

*dead

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This published video has been declared non-functional; embed code must be fixed within 2 days or it will be sent to the dead pool - declared dead by notarobot.

*talks

Adding video to channels (Talks) - requested by gwiz665.

>> ^messenger:
True story: Two guys I know like to play a video screen game together at a particular bar. If you win up to a certain level, you receive a two free pitchers of beer. The pitchers of beer normally cost $30. In their experience, it takes about two hours and $40 worth of quarters to win the beer. Occasionally they win with less money in less time, and occasionally they give up before they win and forfeit all their money. Are they retards for playing it?
No. They would have bought the beer anyway, and whatever extra money is worth the fun they have playing the game together. They say, "It's $40 for the fun and conversation together, and the beer is free." To my eye, it's exactly the same with the lottery. As the questioner said towards the end of the vid, lottery players don't actually believe they're going to win. It's an entertainment cost because it makes them feel good, for whatever reason.


I realize I'm commenting on an old post, but I think you just proved that you misunderstand Gilbert's use of the lottery as an example. The two guys you know have an exponentially higher chance of making money, or at the very least, breaking even than people who play the lottery. Gilbert is referring to lotteries that have astronomical odds of winning, not a game at a bar that one can win relatively frequently.

Also, you are right that he didn't include expected utility in this talk, but he did say it was a simplified version and I know he would take the utility into account in his research. Further, Gilbert's other work shows that, after 6 months, a lottery winner's level of happiness is about the same as a parapalegic's level of happiness 6 months after they lose the use of their legs. Utility may be nice, but if your level of happiness after 6 months is exactly the same, maybe, in a purely logical sense, the lottery is still just a stupidity tax.

The thumbnail image for this video has been updated - thumbnail added by vaporlock.

*quality

Boosting this quality contribution up in the Hot Listing - declared quality by vaporlock.

I was especially tickled to see the anti-aging/anti-death guy in the audience with a question. Very good talk on many levels though, I was impressed and can see myself at least attempting to use this information. (for both good AND evil muhuhuahahah)

Although the colours suck a bit on youtube, I prefer the larger embed size - so here you go :]



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This is what i was thinking.



>> ^messenger:

Dan Gilbert doesn't understand Daniel Bernoulli's theory. He has over simplified it and removed the value of expected utility. Poor people make much better usage out of a lottery winning than rich people do. This utility value has to be factored into any equation placing a value judgment on an investment, even a lottery ticket.
When Dan insults lottery players, from a strictly numbers point of view, he's right, of course, but playing the lottery is not a strictly numbers kind of game; it's about utility. He doesn't take into account the actual value of winning and losing to the people who play.
Here's a demonstration of the difference utility adds to the simplistic equation of expected value:
You bet on a coin toss against an outstandingly wealthy opponent. If you win, your opponent will instantly triple your net worth, including your cash, assets, and salary. If you lose, you lose everything, including your job and employability.
The odds of winning are .5, and the reward is 3. Multiply these together, and you get 1.5, which means that you are getting 2:1 on your money. Looks good on paper. But of course not even economists would play this game --not even if the reward were raised to x10 or x100-- because the consequence of losing everything, though less in monetary value than the reward, is unthinkable, even compared to the relative gains from having x100 your wealth. The expected utility to you of your first "net worth" far exceeds the utility that the second and third would give you, so it's a bad bet.
Back to the lottery: if you lose a dollar, you don't noticeably lose any economic power, even if you play every week and lose $52/year. In other words, you lose a negligible amount of utility. You may even get $52 worth of enjoyment out of waiting for the results to come up, talking about it and bonding with your pool of coworkers, or daydreaming about the good life and getting distraction from the reality of your trailer park McJob life. But if you win something big, it will instantly end all money troubles for you and your whole family, maybe for generations to come. In other words, massive utility. It's not a stupid decision at all to buy a lottery ticket if you factor in utility.
Edit: Oh, and now that I've actually watched to the end, I see that someone in the Q&A made one of my points, but they both still missed the boat on the strictly financial utility of losing $1 to winning millions when you're poor.

holy crap! I can't believe I've never seen this lecture before!

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