Psychology, Lottery Marketing, and Regulation

In: Miscellaneous

Submitted By blaine
Words 3286
Pages 14
Marketing is, fundamentally, an effort to change the way a person feels about a product and engender a desire to change one’s purchasing patterns. Commercials play on our psychological desire to be “cool,” to fit in, or to feel good about ourselves. Anyone who has seen the Malboro Man straddling a horse and smoking a cigarette, or a bunch of attractive men and scantily clad women frolicking in the mountains drinking beer, can understand the popular association of coolness and fun with these activities. That is, until you recall the image of your friend vomiting at a party or constantly reeking of smoke. The marketing of games of chance, such as lotteries and casino games, is very similar. It often focuses on psychological tendencies and weakness as well as misconceptions, such as the possibility of rising from one’s current socio-economic state, internal and external loci of control, and counterfactual thinking, to attract customers to their business.
From an economists standpoint, the choice to gamble has historically been somewhat disconcerting. According to standard theory, people will almost always choose to pay a premium, like insurance, to eliminate uncertain future outcomes. Yet gamblers regularly seek out opportunities to participate in gambles where the odds are overwhelmingly against them.
In his May 1981 paper in the Quarterly Journal of Economics, Bruck [1] evaluates a modified utility curve to explain the apparent inconsistency with economic theory. The figure below, copied from Brucks paper, illustrates graphically how a rational person can take such enormous gambles. Rather than following the traditional risk-averse model, where the utility curve has a log or square root-like shape, the cubic utility curve allows the individual to gain a higher utility, marked by Un, by taking a gamble with a large payout. This could be…...

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