A Nudge Exception To Anti-Lottery Statutes

Thanks to everyone at Concurring Opinions for inviting me to guest blog.  It has been a lot of fun.  Thanks also for your great comments and to The Volokh Conspiracy, Instapundit, PogoWasRight.org, The Guardian, and others for linking to my posts throughout the month.

A couple of years ago, Peter Tufano of Harvard Business School had a great idea.  Why not turn the allure of lotteries on its head by using them to encourage people to save more?  Eight credit unions in Michigan participated in the “Save To Win” program, where every deposit of $25 or more dollars represented a chance to win $100,000.  One could imagine other implementations that channel vice into virtue.  Walmart might sell lottery tickets to its employees, for instance, and put the proceeds into a flexible spending account to cover healthcare costs.  The blog companion to the 2008 book Nudge has a wealth of examples.

Win-win.  But I wonder whether such programs are technically legal.  Many states claim a monopoly on lotteries.  No one else can hold them.  I especially like the way the California constitution puts it:  “(a) The Legislature has no power to authorize lotteries, and shall prohibit the sale of lottery tickets in the State. … (d) Notwithstanding subdivision (a), there is authorized the establishment of a California State Lottery.”  Lotteries are defined broadly as any requirement to furnish consideration (as in contracts, virtually anything of value) in exchange for a chance to win money or other prizes.  Courts have found consideration where all a person had to do to participate in the contest was travel to the store.1

Presumably the theory behind anti-lottery statutes, coupled as they often are with massive state-run lotteries, is that only the government can be trusted to be fair.  The language of these statutes calls to mind mobsters operating out of hidden back rooms.2  State lotteries, in contrast, are scrupulous and open.  They are swathed in professional award-winning marketing.  States take the considerable money their lotteries generate and apply it toward crucial expenses such as education that few are likely to question.

The problem, of course, is that even scam-free lotteries leverage human fallibility.  It seems hard to deny that states are taking advantage of people’s tendency to put hope above reason.  There is room for study and debate, but some research suggests that it is predominantly those who cannot afford to spend money on lottery tickets that regularly do so and that many do not benefit from the added state revenue. And, as Michelle Harner noted on this blog a few months ago, even people who win the lottery commonly file bankruptcy within a few years.

Indeed, lotteries are a good example of why we cannot, as some contend, look to John Rawls’ publicity principle to domesticate the worry that soft paternalism is manipulative.  State officials are perfectly willing to own up to holding lotteries but that does not mean that we shouldn’t be concerned about the capacity of lotteries to manipulate citizens or otherwise cause harm.

I am not calling for states to give up lotteries or anti-lottery statutes.  Nor can I imagine a prosecutor bringing an action against a program designed to help people save more.  To avoid any semblance of hypocrisy, however, perhaps a general exception makes sense: no private entity violates an anti-lottery statute unless the proceeds benefit the public less directly than the lottery run by the state.

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[1] Query whether a person moving their money from one place to another constitutes consideration.  I believe it might: banks certainly benefit when people open free checking or savings accounts and provide financial incentives for them to do so.

[2] See, e.g., Florida Statute § 849.09(h) (prohibiting any person from having “in her or his possession any so-called ‘run down sheets,’ tally sheets, or other papers, records, instruments, or paraphernalia designed for use, either directly or indirectly, in, or in connection with, the violation of the laws of this state prohibiting lotteries and gambling”).

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