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 conceptually motivated by a desire to rise above one’s present state and live a substantially better life. Brucks empirical work confirmed that those who were largely unsatisfied with their income were more likely to regularly invest in lottery tickets [1].
Note that the wealth listed as the unit for measurement on the horizontal axis is present certain wealth. While this modified utility curve provides a good explanation for why rational individuals engage in lotteries with massive potential winnings (however small the probabilities of winning may be) it may still be unclear why gambles with relatively small payout are purchased. The motivation behind those who engage in gambles with less than spectacular payouts, however, may come from the observation that even smaller payouts of
$1000 or even $500 may provide enough of an increase in wealth for the effects of the above utility curve to be realized [2].
If this is an accurate model, as Brucks empirical work suggests, then lotteries would be well advised to increase the focus on, and the actual size of, their payouts. This can widely be seen in high visibility given to “mega” lotto’s. In San Diego, there is a large billboard which displays the current level of the Super Lotto. Interestingly, this billboard is located in
National City, a less wealthy section of the city. Likewise, the same payout figure is the prominent, and only, number displayed on the California Lottery’s webpage [8]. Likewise,
New York’s Lottery home page displays the payouts for the 6 and 10 million dollar lotteries, and places the other games below, and does not include their payouts [11]. In an advertising campaign in 1996, the Massachusetts State Lottery featured two life plans; the first plan comprised studying hard from the age of seven, getting a good job where you sacrifice your weekends and holidays, scrimping to save enough for retirement. The second is simple: buy a lottery ticket. This clearly focuses on those who are unsatisfied with the work needed to succeed in life, and plays on the potential for a single, gigantic windfall to entice patrons to purchase more tickets [12].
One of the key determinants of gambling behavior is one’s locus of control. Miyazaki
[4] defines the locus of control as, “a personality trait reflecting people’s belief that events are within (internal locus) or beyond (external locus) their control.” Thus, people with an internal locus will perceive within themselves an ability to influence the course of events around them, even if they are completely random. These are the gamblers who will, upon winning, attribute the victory to skill rather than a favorable draw or roll of the die, and are attracted to games that have an element of skill, strategy, or personal involvement [4]. In his 1990 study,
Griffins, as cited by Miyazaki [4], finds that blackjack players who are allowed to choose their own cards (still without knowing what cards there were), rather than have a dealer hand them the cards, are willing to wager more, finding in their drawing an element of personal control. On the other hand, those with an internal locus of control, who view events as beyond their control, are subject to a different impetus: luck. Since these people do not regard their skill as affecting the outcome of these games, convincing them that they are lucky and can win regardless of their inexperience or lack of skill can incite a greater desire to engage in the gamble [4].
Both lotteries and casinos use advertisements that play heavily on one’s locus of control, either through skill or through luck. In a recent commercial, the New Jersey State
Lottery features Danny Aiello walking into a deli and asking for six of several different items.
The clerk inquires as to why he wants six, Danny’s response: “I always pick six.” [9] This is a clever statement with two meanings. It has an obvious reference to the pick six game itself and it certainly encourages the audience to pick their favorite or special number. Since the picking of one’s number may be interpreted as having a degree of control or skill, it would appeal to consumers with internal locus of control. Some lotteries have added games that include scratch/rub off sections which allow people to more directly participate and influence the outcome of the game [2]. In 1995, the New York Lottery produced a pamphlet with a section entitled, “The Art of Picking Numbers,” which encourages ticket buyers to choose numbers that are “associated with daily activities” [4]. Clearly, since lotto numbers are picked at random, and even if personally significant numbers had a higher chance of being picked, and different numbers are significant to different people, this strategy is completely irrelevant and misleading. Nevertheless, it does further the feeling among internal locus of control people that there is indeed an element of skill or control that they can exercise in their interests. For those consumers who may not gamble as frequently, and/or have an external locus of control, the commercials and advertisements aimed at them are a little bit different. Rather than try to engender a feeling of skill, they frequently focus on the amorphous concept of luck. Miyazaki [4] notes that the Washington State Lottery employs a four leaf clover, a traditional symbol of good luck, as its logo as well as printing brochures that encourage picking “three (or even two) lucky numbers (try birthdays, license plate numbers, the time) and you could be a winner every day.” It is interesting to note that this is essentially the same ploy that was used in “The Art of Picking Numbers.” It seems that picking numbers can be viewed as both something that requires skill (by those who feel they have it) or randomly (by those who feel that they have no control over external events). Also, the four leaf clover is also an integral part of the New Jersey Lottery logo [10]. Besides advertisements that aim at one’s locus of control, there is another set that looks to induce counterfactual thinking in its audience, and through this, increase sales volume.
Counterfactual thinking is the ubiquitous propensity to imagine what could have been
(pre-factual) or what may happen in the future. It also includes mental comparisons between the concrete real existence and a potential one [3]. In the vulgar tongue, this reduces to daydreaming, both in relation to the past and the future. The strength of regret is well recognized as a motivating factor in life’s decisions [3]. The desire to prevent the reoccurrence of what are seen to be the past’s mistakes offers a powerful incentive to change one’s behavior in the future. In the context of lottery advertising the application of this psychological tendency is quite obvious. It provides the opportunity to win enormous amounts of money and avoid the potential regret of not playing when one could have won.
While there are many examples of commercials/advertisements that focus on this characteristic, perhaps one of the best examples involves a commercial from the Tri-State
Lotto where a man is seen grilling hamburgers while exciting scenes of wealth flash before his eyes to the tune of “It Had to be You.” The lyrics are instructive:
It could’ve been you
It could’ve been you
Count’n the dough
Ready to go on that three month cruise
Walkin’ in style down easy street
Wearin’ a smile, it could have been sweet
But what can I say
You just didn’t play
It could have been you. [5]
The message is clear and the induced regret could be extreme, especially for those who have a favorite or lucky number. It is easy to see how the potential for regret for not playing every time could quickly lead people to excessive levels of ticket purchases. This tactic is even more directly implemented by the Pennsylvania State Lottery with their ad that reads, “Don’t forget to play,” while others show the pictures of people who, had they played their normal numbers, would have won [5].
While the amended utility curve, locus of control, and counterfactual thinking are in no way intended to explain all of the ways in which people can be tempted to gamble, they do provide a reasonable background for a continued discussion of the nature lottery marketing.
We have seen that in many respects, advertisements tend to prey on these psychological weaknesses and may mislead the audience into believing that it is reasonable to believe that they too will win. In the words of the New York Lottery, “we won’t stop until everyone is a millionaire” [5]. Given the vested interest a state has in its lottery, and the aggressive, perhaps even questionable, marketing strategies, the continuation of this paper will investigate the current regulation of lottery advertising and the possible need for additional rules.
While it is clear, based on the large number of links from state lottery web pages to gamblers help and addiction assistance programs, that there is some significant relationship between lottery gambling and problem gambling, the level of correlation between lottery gambling and the development of a problem has not firmly been established (the research reviewed for this paper found no such study). However, even if the direct connection between lotteries and problem gambling is tenuous, there is still a need to evaluate the ethics of advertising lotteries in the manner that they current exist. For most industries, the rules of appropriate advertising are established by the Federal Trade Commission, and many of the rules germane to this discussion are generally prescribed in the Truth in Advertising Act [13].
This set of rules requires the adherence of advertisers to three conditions: advertising must be truthful and non-deceptive; advertisers must have evidence to back up their claims; and advertisements cannot be unfair. While there are extensive explanations of what constitutes a material breach of “unfair” or “non-deceptive,” the essence is stated as something that“is likely to mislead consumers acting reasonably under the circumstances; and is "material" - that is, important to a consumer's decision to buy or use the product” [13]. While these rules do not apply to lottery advertising, they are the conditions which are imposed on virtually all other forms of advertising, and thus provide a reasonable starting point for an analysis of what elements of lottery marketing may need to be addressed.
Along with the Truth in Advertising requirements, most other major industries which produce socially questionable, or even those which sell products whose outcome is inherently uncertain (like mutual funds and stocks), products are required to follow even more extensive guidelines. Cigarette packs, billboards, and even commercials are required to include a disclaimer that reminds consumers that cigarettes can cause lung cancer along with a host of other aliments. Consider the last commercial advertising a mutual fund or stock advisor.
Even though the expected return on the investments is positive, there is always a note that cautions investors that past performance in no way guarantees continued future success.
Yet, in spite of the strict rules associated with some other socially questionable activities, there is no federal regulation of lotteries and the Truth in Advertising Act doesn’t apply to states [2],[4]. In this vacuum of regulation, a study conducted by Clotfelter and Cook
[2] showed that only about 12% of televised advertisements even included the odds of winning, and in many cases, what was reported were the odds of winning any prize, not necessarily the grand prize. However, for all other sweepstakes in the United States, the
Federal Trade Commission requires the organization to “disclose the odds of winning all prizes as well as other facts about the game” [2]. Several papers, although some have some mathematical problems, have been devoted to studying the impact of informing gamblers of the odds or expected values of the lottery tickets they are about to purchase [6],[7]. In both studies, the results showed a strong correlation between an increase in the ones understanding the probabilities and structure of a game, and a decrease in the amount of money spent on lottery tickets. This seems to be a patent example of withholding information that is material to the consumers decision to purchase the product.
A related source for misleading information is the increase in “subjective probability” caused by the overt focus on winners [2]. According to Tversky and Kahneman (as cited in
Clotfelter and Cook) [2], the depiction of a tangible event stands to increase the perceived, or
“subjective probability,” of the event happening again. If ones perception of the relative probabilities of two events are influenced by the observation of one of them, then the high frequency of winners paraded through the commercials may be seen as an element of misinformation. As many lottery advertisements feature either real or fictitious winners, and few provide any hard numbers relating the odds of the winning, there is an added element of possible deception in skewing the perceived probabilities of the game and thus constitutes a
“theoretical” infringement (that is, an infringement that would exist if lotteries were subject to
Truth in Advertising) of the Truth in Advertising Act.
Since there appear to be at least two elements of lottery marketing that are in conflict with Truth in Advertising and/or requirements imposed on other industries, it is logical to conclude that there is a real need to address the regulation of state run lotteries. Likewise, while other industries are tightly regulated in terms of the contents and disclaimers that are required, lotteries have no equivalent regulation. Sadly, very little has been done in the academic arena to discuss a course of action. A search for “lottery regulation” in EBESCO returned no articles, PROQUEST returned no results, Wilson Web gave 4 hits, none of which were really relevant, and finally, a search of JSTOR revealed one article, which, again, was not really germane to the topic of regulating lotteries. This brief search highlights the dearth of scholarly research on lottery reform. Why there is so little on the issue is uncertain, but the need for a solution is clear.
What is needed now is a proposal for an alternative way of operating the lotteries. In spite of the social, moral, and even economic objections to lotteries some may espouse, it does not seem likely that the elimination of state (or multi-state) lotteries is a foreseeable possibility. A proposal to separate the conflicting interests of increased government revenue and unregulated lottery marketing, would, however, have some possibility of being adopted.
One road that could be investigated would be the privatization of the lottery into a state approved entity. Since it is unlikely that state governments would be willing to give up that extra revenue, a private firm would take a cut of the income and give the rest to the state. The possible advantage here is that the private company may be held to Truth in Advertising rules or other government regulations that could eliminate some of the questionable practices pointed to by lottery critics. Another potential solution lies in a public call for stricter state regulation of its own lottery. Some states, notably Missouri, Virginia, and Wisconsin have already established reasonable and guidelines for their advertising which prohibited ads which were designed to induce people to buy lottery tickets[2]. This is an amazing step to take (and the effects it is having on states compared to others would be an excellent empirical study).
Although Missouri also required a disclaimer in all ads which read “This message is for informational and educational purposes only. It is not intended to induce any person to participate in the lottery or purchase a lottery ticket,” the plan was rescinded when sales dropped too much in 1987 [2]. Similar actions in other states would go a long way to mitigate the ire of their opponents.
Humans are subject to many different psychological tendencies and weaknesses.
We’ve seen that allure of a large payout, even with a remote probability of achieving that payout, along with counterfactual thinking, and locus of control all being played to in lottery advertising. It so doing, the commercials appear to be violating some Truth in Advertising principles which, at this point in time, do not apply. Thus, it behooves each state to seek out a process where, perhaps through privatization, the conflict of interest between revenue and consumer protect may be solved.
[1] Brunk, Gregory. (1981) A Test of the Friedman-Savage Gambling Model. Quarterly
Journal of Economics. Vol. 96, No. 2, 341-348.
[2] Clotfelter, C., and Cook, P. (1989) Selling Hope. Cambridge, MA. Harvard University
Press.
[3] Landman, Janet and Perry, Ross. (2000) “It Could Have Been You”: How States Exploit
Counterfactual Thoughts to Market Lotteries. Psychology and Marketing. Vol. 17, Issue 4,
299-321.
[4] Miyazaki, Anthony D., Brumbaugh, Anne M., and Sprott, David E. (2001) Promoting and Countering Consumer Misconceptions of Random Events: The Case of Perceived
Control and State-Sponsored Lotteries. Journal of Public Policy and Marketing. Vol. 20, No.
2, 254.
[5] Shenk, J.W., (1995) Everyone’s a Loser. Washington Monthly. Vol. 27, Issue7/8, 22.
[6] Sprott, David E., Brumbaugh, Anne M.; Miyazaki, Anthony D. (2001) Motivation and
Ability as Predictors of Play Behavior in State Sponsored Lotteries: An Empirical Assessment of Psychological Control. Psychology & Marketing, Vol 18(9), 973-983.
[7] Stearns J., and Shaheen, B. The Ethics of Lottery Advertising: Issues and Evidence.
Journal of Business Ethics. 14: 43-51, 1995.
[8] http://www.calottery.com/
[9] http://www.state.nj.us/lottery/news/5-4_on_air.htm
[10] http://www.njlottery.net/
[11] http://www.nylottery.org/index.php
[12] http://www.family.org/cforum/hotissues/A0001277.html
[13] http://www.ftc.gov/bcp/conline/pubs/buspubs/ad-faqs.htm (Truth in Advertising)