One ice skate, one zori

Before I get to the coolest story of the year, while so many folks are sweating paying the bills these days, allow me a flashback to the early ‘90s:

Prof. C., a professor of finance, was 20 minutes late to a dinner I attended.

“Sorry I’m late,” he announced when he finally arrived. “The mega-lotto is tonight, and the line for tickets at the liquor store stretched all the way out the door to the barber shop.”

Everybody laughed at the quip. It made for a comical image: The distinguished professor lined up cheek to jowl with the proles at the corner liquor store, his the solitary Harris tweed jacket among the mullet haircuts and tank tops.

As the laughter at the table rose and fell, the professor held a straight face.

Then he dug into his jacket pocket and produced his lotto ticket, declaring: “I always play my lucky numbers.”

Fast-forwarding to modern times and the coolest story of the year, it seems that our good professor wasn’t the only one playing a hunch. According to the (U.K.) Daily Mail, one Joan R. Ginther, of Texas, reportedly a former professor of mathematics, has won four lottos over a span of years.

And we’re not talking pipsqueak deals here: The payouts were $5.4 million, $2 million, $3 million, and, finally, $10 million. Whew! I’d be late to a few dinner parties myself for that kind of coin.

Ginther, according to the story, holds a Ph.D. from Stanford, “specializing in statistics.”

Cazart! Is that cool, or what?

It’s certainly intriguing.

So what do you think? Is she just very lucky, or was something else but fortuitous randomness involved? I think this story has been picked up in a number of places, so you can probably delve further into it if you want. As for me, I’m happy to drop the trail here.

I know doctors, dentists, airline pilots, and engineers who buy lotto tickets. These folks are smart enough to understand the probabilities involved, at least at the basic conceptual level. In terms of financial probability, yes, it’s a losing proposition. But in terms of hedonic economics, it can be a rational transaction: Their enjoyment from the “strike it rich” fantasy exceeds the enjoyment of whatever else they could have spent the money on.

“Hedonic” is no idle term, by the way. You’ll probably suspect, and correctly so, that this is a linguistic sibling of “hedonism.” Well, that might sounds frivolous, or even salacious, but there’s no monkey business here. No, sir. I run a respectable column! So it’s a “true fact” that modern economic theory is a hedonic model, in which people make decisions and engage in transactions with the goal of maximizing their happiness.

Back to this lotto thing. I’ll consider a lotto ticket, or other types of gambling, as “risk seeking” behavior. In other words, somebody is willing to pay a premium in order to make a risky play, and these are net-loss transactions in the statistical sense. You don’t win a lotto because the odds are with you, you win it because the odds are against you; that’s why it exists in the first place.

And yet these same lotto people, at least those of my acquaintance, also pay insurance premiums every month, which, of course, is for the diametrically opposite concept: risk-aversion. Just as the odds are with the lotto companies, the odds are also with the insurance companies. So for the customer this is also a net-loss transaction in the statistical sense.

Hey, loss on one hand, loss on the other. Good grief!

Indeed, statistically speaking, the only way to come out of this stuff optimally is to be risk-neutral, neither paying to get, nor to avoid, risk.

So no lotto ticket or insurance for you, pal. But most of us wouldn’t accept that situation. We derive comfort from paying to avoid risk (insurance) and also by paying to get risk (lotto tickets). How wacky is that? It’s like having an ice skate on one foot and a zori on the other.

I don’t play the lotto, but I play an occasional hand of blackjack. So I’m not holding myself aloof from the discussion here, I’m also an ice skate and zori guy.

But I don’t have any lucky numbers. I’m beginning to wonder if I should re-think that approach. After all, $10 million jackpot sounds pretty good to me. Dreaming about that might keep me from worrying about reality for awhile. Hey, I guess that’s the whole point, isn’t it?