March 30, 2009

Winning the lottery leads not to instant gratification, but to almost three years of mental strain and angst.  Receiving a windfall of cash causes cognitive dissonance that is alleviated only when the tainted money comes to feel as deserved as earned income, say researchers Andrew Oswald and Rainer Winkelmann, in their new study.

Economics rests upon a set of presumptions about how human beings are affected by income.   And it is expected that people like winning the lottery and that such wins quickly improve the quality of people's lives.  This is what most economists, and economics textbooks, would predict.  But the facts do not support such a conclusion, say Oswald and Winkelmann. 

In fact, causal evidence is scant.  Using a longitudinal study of randomly selected lottery winners, the researchers discovered a strikingly delayed effect:

  • Even for a measure of financial satisfaction -- chosen here because it is so naturally the domain of lottery winnings -- we cannot discern any impact upon people for a full 2 years.
  • Then, a large effect becomes visible; by the third year, a person's satisfaction with their household's income is markedly higher if they earlier had a substantial win on the lottery.
  • The control group in this calculation is effectively those with small wins; the effect is highly robust in subsamples.

Moreover, these results dispose of the view that lottery wins can initially make people happy.  Instead, lottery income and wage income are not identical in their consequences.  Despite the traditions of economics, human beings may weight differently the different kinds of income that accrue to them.  It is not true that "a dollar is a dollar," say Oswald and Winkelmann.

Source: Andrew J. Oswald and Rainer Winkelmann, "Delay and Deservingness after Winning the Lottery," Socioeconomic Institute (University of Zurich), Working Paper, No. 0815, December 2008.

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