As my daughter becomes more involved with Irish dancing, I have become more acutely aware of Irish culture and heritage. The annual Illinois lottery‘s St. Patrick’s day raffle apparently is wildly popular. Today when I attempted to buy a $20 ticket for a chance to become a millionaire, the clerk at my local 7-11 kindly told me that all tickets were sold out. Now some things are shocking and some simply don’t make sense. Sold out lottery tickets ring in my head as a huge entrepreneurial opportunity. What is really at play here? First in raw numbers the chances of winning a large lottery jackpot are similar to being eaten by a tiger and a shark on the same day (NY Times “Economix Putting your odds in lottery context” 10/19/09). Since I don’t plan on swimming with sharks and napping with tigers at the same time, I may have to look at an alternative revenue stream. Surely I am not the first consider why people buy lottery tickets but I would suggest people play the lottery for four reasons:
1. Operant Conditioning using variable reinforcement (termed by June Foyle of Suny NY Clinton). In terms we can understand this means fun caused by the possibility of an unpredictable reward, similar to why we like to watch contested sports. When something is unscripted and our team has a chance to win and we are captivated. Similarly when an individual has a chance to win a cash prize (termed variable reinforcement), even though the odds are high everyone has a dream to pursue.
2. The Availability Heuristic is the concept in which you hear constantly about a winner. Our mind begins to frequently recall success stories often repeating the same instance. This is why the state lotteries run the drawings on TV and make sure the winners do an ample amount of publicity work. As we continually hear about lottery winners, our mind relies less and less on probability and more on the wonderful anecdotes of the lottery winners. In real terms we equate the probability of winning with how often we hear about lottery winners.
3. The Slot Machine Fallacy is the assumption that as a gambler we are “due”. Our run of unsuccessful winning tickets is about to end any day as the numbers are going to turn our way. Again probability is temporarily suspended and we know that winning is imminent. We will be rewarded as our time to win has come.
4. Selective Memory plays along closely with the Availability Heuristic. Hence we choose to remember only the instances in which we win rather then the actual facts surrounding the circumstances. These observations fascinate me as en Entrepreneur because I see the challange as re-creating these elements in a business model. How can a I create a contest that gets people excited to play? What do I do make sure only the positive outcomes of my business are well represented across all media platforms. How do I communicate to customers that if they buy my product or service they will be rewarded? Finally how do I use the power of customer selective memory in marketing my business so I will satisfy consumers based on a high level of emotion?
Lets part today borrowing a concept from Game Theory. If I called you on the phone and told you that had just won a million dollars your audible scream measured by a decibel level would be quite high. However if I called you and reported that you had just won two million dollars would your scream be twice the decibel level as when you were notified that you had won exactly half the sum of money in the previous phone call? As a teaser I will discuss the economic concept of the utility of money in an upcoming post. Stay tuned loyal readers.
Until next time, be good and cultivate your community of friends.