The worst personal-finance video ever

By Felix Salmon
March 14, 2012

Like many people, I’m fascinated by lottery tickets. In many ways they’re the purest speculative investment in the world: a piece of paper which is all but worthless today might be worth $200 million tomorrow. Literally. Lottery tickets are a bit like SWAG assets (silver, wine, art gold) in that you can only make money on them by giving them up and exchanging them for cash. They pay no dividends, and they have an asymmetrical payout: the most you can lose on any one ticket is a modest dollar, but the most you can gain is enormous.

On top of that, lotteries can be gamed, as Jonah Lehrer spelled out in a fantastic Wired story last year. And casinos can be gamed too, as Mark Bowden explains in the the latest issue of the Atlantic. Beating the odds is a staple of great narrative journalism for good reason, and of movies, too. Which is why it’s so incredibly depressing to see this being hosted at CNN Money, under the headline “Boost your odds of winning the lottery”.

Richard Lustig is a get-rich-quick hack with no idea at all of how to beat any lottery. Yes, he’s won an impressive number of jackpots. But he also advises that one third of all your winnings should be “reinvested” into lottery tickets — which means that he’s betting an enormous amount of money every week. He never gives any indication of what his ROI is; indeed, he never actually comes out and says that he’s a net winner. Neither can I see any indication that all the money he’s gambling is his own. Certainly Lustig’s bare-bones website, which seems like it was designed in 1997 and which features an ad for 995SunGlasses.com, gives the impression of someone who’s on a very tight budget. And the less said about his all-caps twitter feed, the better.

Lustig’s advice is simply bizarre: he reckons that you should buy lottery numbers in sequence, and that you should never buy “quick-pick” (randomly-generated) tickets. In fact, if you’re going to play the lottery, the rational way to play the lottery is to do the exact opposite of Lustig’s advice. Never pick your own numbers; always accept random numbers. The reason is that when lotteries have big prizes, those prizes are parcelled out between everybody who had the winning numbers. For instance, in August 2010, Lustig had a winning ticket in a draw where the jackpot was $197,985.84. But so did someone else — so he ended up winning only half that amount. And if you want to minimize your chances of overlapping with someone else, you’re much better off accepting a set of random numbers than you are using some kind of human-generated method. Remember when 110 people all had the winning numbers 22, 28, 32, 33, and 39, just because those numbers were printed in fortune cookies?

I have no problem with people spending small amounts of money on the lottery — in fact, sometimes it’s a positively good idea. But I do have a problem with anybody who’s shilling the idea that you can make money this way. And I have a huge problem with respected websites like CNN Money giving that person extremely positive publicity, without any hint of skepticism about the claims involved.

Let’s be clear about this: if you buy a lottery ticket, you should expect to lose all of your money. If you still want to buy a ticket knowing that you’re not going to get your money back, then go right ahead. But spending $40 on Richard Lustig’s book is a very, very, very bad idea, not least because you’ll probably end up spending many times that much money on tickets. And it’s downright unethical for CNN Money to implicitly encourage people to do so, by running dreck like this.

Update: CNN has taken the video down. “The CNNMoney newsroom takes great pride in its journalism, with consistently high standards for reporting,” says a CNN Money spokesperson. “This video fell short of that mark and we’ve chosen to remove it from our site.”

9 comments

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But Felix – does this mean that Ben Stein has been dethroned?

Posted by Dollared | Report as abusive

FELIX YOUR AN IDIOT. EVERYONE KNOWS THAT IF YOU WANT TO WIN THE LOTERY ALL YOU HAVE TO DO IS SET A BUDGET AND BE CONSISTENT.

MORAN.

(/sarcasm)

Posted by KidDynamite | Report as abusive

Whatever, Felix. All my money is invested in Norman Rockwell collector plates.

Posted by ZacBissonnette1 | Report as abusive

@Dollared Ben Stein cannot be dethroned as his legacy (of infamy?) continues to grow with every appearance he makes in print and on TV. It also doesn’t help that he’s a hardcore zionist screaming at the top of his lungs to bomb, invade, and occupy Iran. His credibility is like perfect negative correlation: doing the exact opposite is most likely genuinely the exact action one should take. So a little lottery scam pales in comparison to that level of Cramerity

Posted by CDN_Rebel | Report as abusive

I do object to ad campaigns, run by governments, that routinely overstate the winnings’ impact on your life. The lifestyle they describe are not consonant with the amount of money involved in hitting the jackpots on offer.

Posted by jayackroyd | Report as abusive

I like to describe my (extremely infrequent) hopes of winning the lottery — which in Cali is back up to hefty number — as somewhere between luck and divine intervention. $1 isn’t that much to (extremely infrequently) spend to become a black swan:

http://www.scpr.org/blogs/economy/2011/1 2/07/3961/california-lotterys-100-millio n-jackpot-worth-shot/

Posted by mattdebord | Report as abusive

“Remember when 110 people all had the winning numbers 22, 28, 32, 33, and 39, just because those numbers were printed in fortune cookies?”

Hmm, well, that only makes half a point. They got a smaller share of the payout, but they did get a payout. Their method got them a winning number. One unanswered question is, how often do human-picked numbers win vs. machine picked numbers? Statistically it shouldn’t matter, as long as the winning number is picked in a truly random way. The machine picked numbers probably aren’t completely random. But it would be interesting to see the real-world results.

Posted by Moopheus | Report as abusive

Felix, did the Greenwich hedge Fund guys who hit Powerball last fall prompt same to double the ticket price from $1 to $2?

Seems bizzarre that a $1 lottery with $100MM prizes would see fit to squeeze their players that hard unless they were truly gamed.

Not to mention the regressiveness of doubling the price of hope.

Posted by FrankRuffing | Report as abusive

I love government-run lotteries. They are a tax that you can choose whether or not to pay, and I choose not to.

Posted by Curmudgeon | Report as abusive