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// PUBLIC GAMING INTERNATIONAL // November/December 2016
I
n the traditional study of economics, consumers are assumed to be
rational actors who carefully consider available information, calcu-
late probabilities of events, and weigh potential costs and benefits in
choosing the self-determined best course of action.
Uhhh, not so much.
Economists have always known that humans do not act rationally all
the time, or even most of the time. It’s just that for the purpose of eco-
nomic modeling and predictive analyses, irrational behavior could be
considered anomalous. Behaviorists take a different approach, putting
irrationality at the center, recognizing that we often do not act in our
own self-interests, or that the definitions of “self-interest” are subjective
and vary such that there is no objective criteria to define them.
A new breed of theorists - behavioral economists—are finding that
rational actors have very little place in discussions of how consumers
make decisions. In fact, the generally irrational behavior of consum-
ers—especially in a retail shopping environment—has significant im-
plications for the lottery business and the many marketers, retailers,
and game providers who are important partners in it.
Simply put, when it comes to buying stuff, our capricious hearts
over-rule our supposedly rational heads. The basic wiring of our
brains causes us to act against our own best interests.
In this article, we will provide an overview of the most important
findings in behavioral economics, offer suggestions for how these
principles might be applied to the lottery business, and conclude
with a few thoughts about how behavioral economics might apply
to the future gamification of lottery. Much of what is discussed is al-
ready being applied to the Lottery business, and to good effect. These
phenomena will not surprise most of you. My thought, though, is
that a discussion of the science behind the observable behavior may
enhance our ability to put these principles to good use.
Why We Act Irrationally
Why do our supposedly rational minds fail us in our decision-making
processes? There are numerous reasons, many of which we will explore,
but the A#1, top-of-the-heap, most salient dynamic is this: We seek
immediate gratification. We are what D.J. Neri of Ideas 42, an organi-
zation that uses behavioral economics to work on social problems, calls
“present-biased.” We are more focused on the NOW than we are on
the THEN, especially in matters of personal assuagement. We choose
short-term pleasure even though it may result in long-term loss.
In many cases, we acquire things that we want, not things that we
necessarily need from a utility standpoint. According to the authors
of an article relating to impulse buying in the Journal of Market-
ing Theory & Practice, appeals to instant gratification (like “indulge
yourself”) are more effective than appeals to strengthen consumers’
longer-term goals which would appear to serve their “self-interest.”
Wrapped around this present-bias are several other behavioral prin-
ciples. These unconscious compulsions are in operation at all times,
driving our frequently irrational actions. Among these principles are:
Reactance:
We often do things just because someone tells us not
to. This customarily is regarded as childish, petulant, or immature,
but most of us never fully grow out of it. Rebelliousness is, in many
cases, a motivation for gambling. Someone in our lives may have told
us not to gamble and that just piques our interest to want to indulge
in whatever is discouraged by authority figures. So, for those of us
who are more reactant than others, we stick out our tongues and do
precisely that which was advised against.
How might Lottery craft marketing messages or otherwise leverage
the principle of reactance? Like “Walk on the wild side. It’s fun while
being danger-free. Play Lottery.”
Possibility Effect:
When highly unlikely outcomes (like win-
ning the Powerball jackpot) are weighted disproportionately more
than they deserve to be, we yield to the possibility effect. When
we have a 1 in 292,000,000 chance of winning a lottery jackpot,
the allure of the prize causes us to disproportionately weight our
possibility of winning. The possibility effect is in subconscious op-
eration whenever an individual decides to purchase a lottery prod-
uct. This economic principle explains why marketing messages like
“You can’t win if you don’t play” or “Would you take a shot at $300
million? Your chance is as good as anyone’s!” are effective. The in-
Behavioral Economics:
Lessons for Lottery
By Dr. Lee C. Stuart, business executive, educator, frequent writer on marketing,
innovation, and strategic topics, and contributing editor to PGRI
“Standard economics assumes that we are rational, but we are far from rational
in our decision making. Our irrational behaviors are neither random nor senseless;
they are systematic and predictable. We make the same mistakes over and over
because of the wiring of our brains.”
—Dan Airely, author, Predictably Irrational: The Hidden Forces That Shape Our Decisions