Day 40 - Partner Up to Buy Lottery

As a graduate school student of Dan Ariely, who is the author of Predictably Irrational and The Upside of Irrationality, and a wizard in using experiments to understand human nature, I went to do this rejection session with one goal in mind - to test out the economics of giving money to strangers vs investing money in them. I started out by asking a stranger to give me money - $0.6. After she agreed, I would then propose that the money is part of buying a $2 lottery ticket, and I would be sharing half of the winning ($30M out of $60M) with her if I win. So in a way, instead of giving me the $0.6 for free, she would be investing it in my lottery venture, and be receiving a disproportionally good return (investing 30% of the money and get 50% of return). Would the extra knowledge change her answer? Would it make her more eager? Or would she not care?

First of all, I want to thank Shawna for giving me the $0.6. She is one kind and cool lady. Secondly, knowing the principle of A/B testing and statistical sample size, and I know this experiment is far from being scientific. However, it's a rejection therapy with a test in mind, and the results made me think:

On the surface, Shawna's rejection of my offer made no economic sense. Why would she give up the possibility of winning $30M? Had I won, wouldn't she be having the biggest regret of her life?

However, upon further examination, I concluded that Shawna made the correct decision after all, even using economics principles. Let's say the odds of me winning that power ball is 1 in 175 million. Since the prize is $60 million that day, the expected return for the $2 of 'investment' would be $0.34 (60/175), or $0.17 per dollar. Now with that type of return, Bernie Madoff's scheme looks like deal, but that's another story.

By giving up the chance for half of the $60M, Shawna basically threw away $0.17. However, to get this $0.17, she would have to pay these prices:

1. Shawna would have to write down her information and give it to a stranger - me. I am a guy who asked for $0.6 to buy lottery ticket, so I don't blame her if she doesn't trust me with her personal information.

2. The act of writing down her information will take about 1 minute. If Shanwn makes anything above $10.2 ($0.17x60) per hour, she would be underpaid for that act.

3. Shawna would also need to follow the drawing of power ball. If that effort takes at least 1 minute, the above math still works.

4. By changing from giving me money to investing money, Shawna would need to switch her mental state from being altruistic to being pragmatic. In many cases, mind-switch is a painful exercise.

5. Shawna might be against the idea of buying lottery in the first place. If that's case, she would be going against her own value.

6. It's $0.17, who gives a rat's rear?

Learning: there are many hidden costs with accepting requests from others. So when making such request, make sure you consider these costs, whether they are conscious or unconscious. Otherwise, you might get a rejection, even it doesn't make sense to you.