Can The Lottery Make People Save More?

from the tax-on-the-poor dept

The lottery has often been described as a "tax on those who don't understand probability." However, it seems some enterprising folks are trying to use that basic fact to help people who have trouble saving money (who often overlap with the folks who don't understand probability) to save more. Apparently some credit unions in Michigan are experimenting with a lottery feature as a part of a savings account:

Psychologists have long known that people tend to overestimate the odds of rare events. Applying that behavioral insight, finance professor Peter Tufano of Harvard Business School has devised a clever program called "Save to Win." Launched earlier this year for members of eight credit unions in Michigan, it is a cross between a certificate of deposit and a raffle ticket. Members who put $25 or more into a Save to Win one-year CD are entered into a monthly "savings raffle" for prizes up to $400, plus one annual drawing for a $100,000 jackpot.

Apparently, this program has attracted $3.1 million in new deposits, many (the article claims) from people who have never been able to save much money. In many ways it is like buying a lottery ticket, except that you don't lose the money paid for the ticket. The credit unions make this work by paying out a slightly lower interest rate on the CD in question, but the net effect works out to benefit everyone. Many who put their money into such an account would never have put their money into a higher rate CD in the first place. In some ways, it's a neat example of efficient price discrimination that expands an overall market.

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If You Had The 'Secret' To Winning The Lottery, Would You Patent It?

from the economically-challenging-questions dept

Okay, so this story is bizarre enough by itself, but there's an odd twist at the end. A husband and wife who held four separate winning lottery tickets claims to have figured out a secret formula for winning the lottery. That seems highly unlikely, of course. There is no formula that can predict totally independent numbers. The four winning tickets all used the same numbers, so there's no proof that the couple did anything other than get lucky by having the same number they played four different times hit.

However, their lawyer is claiming that the couple is "exploring patent protection." Want to see a sign of how ridiculous the patent situation has become? If you had figured out the (non-existent) secret to winning the lottery, would you use it to (a) keep winning the lottery or (b) patent it? It's only in these bizarre times that a couple would even think that (b) would be the more profitable option. Of course, if there really were some secret to predicting independent numbers that the couple had figured out, wouldn't you think that any lottery commission would immediately change how their lottery worked the second that patent was published?

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Would A Skill Ranking, Rather Than A Lottery, Solve The H-1B Visa Problem?

from the only-a-little-bit dept

With the applications for H-1B visas immediately outstripping the Congressionally mandated supply, the "winners" will be chosen by a random lottery that is supposed to be "fair." But, as some are pointing out, that doesn't really make sense for H-1Bs. The whole program was designed to bring in the most skilled workers and get them to work for American companies, contributing to our economy. So, why not create a system that lets them in based on skill level? That's the question asked by a rather balanced Business Week piece, which also notes that recent research has shown "skilled immigrants boost the economy and create jobs."

While ranking people based on skill certainly is better than a pure random lottery, it still has its problems. Figuring out who's higher skilled is tricky -- and the suggestions on the table will favor large companies over small and may give too much weight to mediocre candidates who graduate from top schools over top candidates who graduate from mediocre schools. In the end, as even the author notes, the real issue shouldn't be focused on the details of the H-1B program, but on figuring out ways to get more skilled immigrants into the US, helping to build out the economy and create more jobs. That certainly could involve overhauling the H-1B program -- which clearly has far too many abuses -- but it shouldn't involve keeping foreign skilled workers out of the country. That's a recipe for disaster, that will shrink the job market, by having some of the best workers competing against American firms, rather than working for American firms.

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