Lottery Jackpots and Investor Psychology
Mis à jour
If you read my posts in full, you'll find that I find market psychology incredibly interesting. For a school project, I am considering putting together a paper on risk-taking and it's correlation with socio/economic policy and wealth inequality. For fun, here's an example of the kind of data I'd like to use.
In this analysis, I present some historical data about the largest Mega Millions lottery jackpots (over $400 Million). I've marked the dates for these events on both the Bitcoin/USD and SPX (S&P 500) charts. The markers don't perfectly line up, since I used the weekly chart. Nevertheless, you'll notice that these unusually large jackpots often occur NEAR a large market downturn. This means a crash has just happened or a crash is about to happen. Very rarely does a large jackpot occur when the market is going up consistently, at least without a substantial correction. An increasing jackpot (beyond $400 Million) more often than not indicates that people are speculating or gambling more than usual, which may happen when they see the value of other things going up.
The higher the lottery jackpot gets, the more people are gambling hoping to win big. Here is a study from 2010, explaining how some investors will "substitute" stock investing for playing the lottery, as trading volumes dry up during periods where the lottery jackpot goes up. papers.ssrn.com/sol3/papers.cfm?abstract_id=1622184
Based on the simple data I've collected, I'll make a couple of conclusions about recent investor behavior, and I'll speculate as to why this is the case.
Mega Millions Biggest Jackpots (red)
17 December, 2013 - $324 (x2 - $648)
18 March, 2014 - $414 Million
8 July, 2016 - $536 Million
30 March, 2018 - $533 Million
24 July, 2018 - $534 Million
23 October, 2018 $1.537 Billion
1 January, 2019 - $437 Million
7 June, 2019 - $522 Million
9 June, 2020 - $414 Million
22 January, 2021 - $1.05 Billion
21 May, 2021 - $516 Million
21 September, 2021 - $431 Million
It's pretty interesting for Bitcoin if you look at the 3 most recent jackpots:
Powerball (blue)
18 May, 2013 - $590.5 Million
13 January, 2016 - $528.8 Million (x3 winners, over $1.5 Billion)
23 August, 2017 - $750 Million
27 March, 2019 - $768 Million
Year (number of winning tickets - Average Jackpot Value (taken from Megamillions.com)
2002 (9) - $42.11 M
2003 (14) - $65 M
2004 (11) - $101.72 M
2005 (10) - $132 M
2006 (15) - $79.33 M
2007 (17) - $92.52 M
2008 (14) - $110.85 M
2009 (18) - $65 Million. GREAT RECESSION
2010 (13) - $86.23 M
2011 (16) - $100.87 M
2012 (16) - $84.56 M
2013 (13) - $104.53 M
2014 (10) - $127.9 M
2015 (8) - $149.62 M
2016 (9) - $129.77 M
2017 (7) - $138.42 M
2018 (5) - $641.2 M $3.2 B largest yearly pool
2019 (7) - $187.7 M
2020 (5) - $176.2 M. $881 M lowesst yearly pool
2021 (5) - $429.6 M
The total yearly pool ranges between $880 Million and $3.2 Billion. The pool remained largely consistent until 2018. The largest amount of money poured into the lottery has occurred in the last 3 years.
Some observations
1) The powerball win from March 27th, 2019 was the only instance that did not involve a decent-sized market drop somewhere around that date. Both crypto and stocks were recovering from the late 2018 crash.
2) The average jackpot size has been increasing steadily over time, while the number of winners has been decreasing. In the last few years, the total yearly jackpot pool has begun increasing as well.
3) Only 3 of the top 10 Mega Millions jackpot winners won prior to 2018. The frequency of these large jackpots is increasing.
Conclusion
There are a number of factors that might be at play here. Clearly, markets keep going up. The wealth gap keeps increasing while monetary policy remains loose. Perhaps there is an element of desperation. There are probably deeper psychological components to this that would be difficult to evaluate. I'm just putting this out there to show an intriguing relationship. Since the jackpot size was relatively low after big market crashes (both in 2002 and in 2009), this tells us what should be common sense: People are more careful with their money when the market is doing poorly. People are less careful with their money when things are going well. The trend is consistently up for the size of the average jackpot AND the jackpot pool. This could imply we're actually seeing an unreasonable amount of risk and leverage across markets. It might be a warning signal. This is related to a post I made about the psychology behind asset growth and leverage:
In that post, you can read more about my thoughts regarding where we are collectively at the moment. After all, the market is a representation of our collective psychology.
What's nice is that the lottery is a donation pool - most of it goes towards prizes and funding for public resources like schools, even though people contribute to it out of greed. It's kind of like a weird voluntary tax with a slight chance for a big payoff. It almost reminds me of crypto - you participate in a network, which rewards some more than others, with the hope of making it big. There is more chance involved in the lottery, but obviously the more tickets you buy, the higher the chance of winning.
That's it! I will of course be writing more on this subject. This is not financial advice. This is meant for education, speculation, and entertainment.
-Victor Cobra
In this analysis, I present some historical data about the largest Mega Millions lottery jackpots (over $400 Million). I've marked the dates for these events on both the Bitcoin/USD and SPX (S&P 500) charts. The markers don't perfectly line up, since I used the weekly chart. Nevertheless, you'll notice that these unusually large jackpots often occur NEAR a large market downturn. This means a crash has just happened or a crash is about to happen. Very rarely does a large jackpot occur when the market is going up consistently, at least without a substantial correction. An increasing jackpot (beyond $400 Million) more often than not indicates that people are speculating or gambling more than usual, which may happen when they see the value of other things going up.
The higher the lottery jackpot gets, the more people are gambling hoping to win big. Here is a study from 2010, explaining how some investors will "substitute" stock investing for playing the lottery, as trading volumes dry up during periods where the lottery jackpot goes up. papers.ssrn.com/sol3/papers.cfm?abstract_id=1622184
Based on the simple data I've collected, I'll make a couple of conclusions about recent investor behavior, and I'll speculate as to why this is the case.
Mega Millions Biggest Jackpots (red)
17 December, 2013 - $324 (x2 - $648)
18 March, 2014 - $414 Million
8 July, 2016 - $536 Million
30 March, 2018 - $533 Million
24 July, 2018 - $534 Million
23 October, 2018 $1.537 Billion
1 January, 2019 - $437 Million
7 June, 2019 - $522 Million
9 June, 2020 - $414 Million
22 January, 2021 - $1.05 Billion
21 May, 2021 - $516 Million
21 September, 2021 - $431 Million
It's pretty interesting for Bitcoin if you look at the 3 most recent jackpots:
Powerball (blue)
18 May, 2013 - $590.5 Million
13 January, 2016 - $528.8 Million (x3 winners, over $1.5 Billion)
23 August, 2017 - $750 Million
27 March, 2019 - $768 Million
Year (number of winning tickets - Average Jackpot Value (taken from Megamillions.com)
2002 (9) - $42.11 M
2003 (14) - $65 M
2004 (11) - $101.72 M
2005 (10) - $132 M
2006 (15) - $79.33 M
2007 (17) - $92.52 M
2008 (14) - $110.85 M
2009 (18) - $65 Million. GREAT RECESSION
2010 (13) - $86.23 M
2011 (16) - $100.87 M
2012 (16) - $84.56 M
2013 (13) - $104.53 M
2014 (10) - $127.9 M
2015 (8) - $149.62 M
2016 (9) - $129.77 M
2017 (7) - $138.42 M
2018 (5) - $641.2 M $3.2 B largest yearly pool
2019 (7) - $187.7 M
2020 (5) - $176.2 M. $881 M lowesst yearly pool
2021 (5) - $429.6 M
The total yearly pool ranges between $880 Million and $3.2 Billion. The pool remained largely consistent until 2018. The largest amount of money poured into the lottery has occurred in the last 3 years.
Some observations
1) The powerball win from March 27th, 2019 was the only instance that did not involve a decent-sized market drop somewhere around that date. Both crypto and stocks were recovering from the late 2018 crash.
2) The average jackpot size has been increasing steadily over time, while the number of winners has been decreasing. In the last few years, the total yearly jackpot pool has begun increasing as well.
3) Only 3 of the top 10 Mega Millions jackpot winners won prior to 2018. The frequency of these large jackpots is increasing.
Conclusion
There are a number of factors that might be at play here. Clearly, markets keep going up. The wealth gap keeps increasing while monetary policy remains loose. Perhaps there is an element of desperation. There are probably deeper psychological components to this that would be difficult to evaluate. I'm just putting this out there to show an intriguing relationship. Since the jackpot size was relatively low after big market crashes (both in 2002 and in 2009), this tells us what should be common sense: People are more careful with their money when the market is doing poorly. People are less careful with their money when things are going well. The trend is consistently up for the size of the average jackpot AND the jackpot pool. This could imply we're actually seeing an unreasonable amount of risk and leverage across markets. It might be a warning signal. This is related to a post I made about the psychology behind asset growth and leverage:
In that post, you can read more about my thoughts regarding where we are collectively at the moment. After all, the market is a representation of our collective psychology.
What's nice is that the lottery is a donation pool - most of it goes towards prizes and funding for public resources like schools, even though people contribute to it out of greed. It's kind of like a weird voluntary tax with a slight chance for a big payoff. It almost reminds me of crypto - you participate in a network, which rewards some more than others, with the hope of making it big. There is more chance involved in the lottery, but obviously the more tickets you buy, the higher the chance of winning.
That's it! I will of course be writing more on this subject. This is not financial advice. This is meant for education, speculation, and entertainment.
-Victor Cobra
Note
Interesting to note that the largest ever jackpot occurred in October 2018, shortly before the huge crypto crash. Stocks also crashed pretty hard at that time.Note
Largest powerball jackpot since March 2019 is up! Remember what happened to Bitcoin after March 2019? I sure do.
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