Lotto winnings a honeypot, but not as sweet as it seems

Earlier this week, the Internet was abuzz with news that 2,203 cases of scams concerning websites that claim to be able to predict Lotto numbers were reported to the Korea Consumer Agency.

This marked a rapid spike from 903 in 2019, and offered proof to what many already know at heart: Most -- if not all -- of these businesses claiming to have cracked the code on the state-run lottery system could not be true.

Korea’s most popular lottery, Lotto, debuted in 2002 under the supervision of the Korea Lottery Commission and has since dwarfed other lottery tickets issued in the country.

According to the commission, 2.5 trillion won ($2.5 billion) worth of Lotto tickets were sold in the first half of last year. This accounted for 86.5 percent of all lottery ticket sales in the country. A yearly figure for Lotto sales, to be unveiled in February, is expected to far surpass 4.7 trillion won in 2020.

Like two sides of a coin, Lotto has both positive and negative impacts on Korean society. While it played a part in the government acquiring a cash reserve for public use, it also gave birth to related crimes and over-indulgence by some people.


Lotto’s popularity

Some chalk up the rising popularity of Lotto to the economic slump. Financial hardship has driven people to rely more on a game of chance, some say. But Lotto sales have increased every year from 2008 to 2020, regardless of the economic state of the nation.

“While many people think lottery ticket sales tend to rise when the economy is in bad shape, lottery sales during the economic slump of 1998 actually fell 12.4 percent compared to the year before,” a KLC official was quoted as saying.

Lotto’s popularity is curious, as a simple mathematical analysis would dissuade one against buying any tickets. The payout ratio compared to the total profit, for all lottery tickets sold under supervision of the KLC, is 50 percent. This means the average expected return for any given Lotto ticket is exactly half the money one pays for it.

Needless to say, logic is often trumped by hope.

Daniel Kahneman and Amos Tversky’s Prospect theory, which won the 2002 Nobel Memorial Prize in Economics, dives into how individuals assess their potential losses and gains in a specific situation. In the study, it is noted that people have tendency to attribute excessive weight to events with low probability.

“An alternate theory of choice is developed, in which values is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights... Overweighing of low probabilities may contribute to the attractiveness of both insurance and gambling,” the pair wrote in the paper.

Such overweighting of low probability tends to occur when one is overly concerned with the outcome of the said probability. Basically when the reward that one can reap is as massive as a heap of cash, one tends to forget the fact that he or she has a near-zero chance of winning.

Professor Chun Woo-young of Chungnam National University’s psychology department says Lotto’s fairness factors in luring people.

“Besides a person’s abilities and hard work, so many elements factor in life to determine the outcome of that person’s life. Lotto functions as a way out by offering a fair chance. Thus the less fair chance the reality seems to offer, the more people tend to indulge upon Lotto,” he wrote in his column. “People who think the world doesn’t give them a fair chance (at success) are turning to the seemingly-fair game of Lotto.”

This is ironically the message of the Netflix smash-hit drama “Squid Game.” In the show, the “evil” operators claim that they gave a fair chance to people suffering from the unfairness of the outside world. The participants are deluded by the prospect of riches, and willingly partake in deadly games.

Winning the jackpot in the weekly Korean Lotto is roughly an eight million to one chance. It’s far better than the 45-state Powerball in America, which has pitiful odds of 292.2 million to one. While it has a correspondingly larger reward, you are literally far more likely to be struck by lightning, which is a 300,000 to one chance.

But some claim to have found the treasure map, the elusive pattern behind the seemingly random system. Despite such websites being proven to be fake, many still believe the conspiracy that Lotto is predictable, or even rigged.


Ugly side effects

The conspiracy theory about a rigged Lotto is neither new nor exclusive to Korea. Due to its random and high stakes nature, lottery systems have often fallen victim to suspicious eyes.

Many sports fans are aware of the conspiracy theory that the NBA, upon inception of its lottery system to award top draft picks to teams with the worst records, was rigged in its inaugural year of 1985. This was supposedly to ensure that the top draft pick Patrick Ewing would land in New York, the biggest market in America and coincidentally the birthplace of then-commissioner David Stern.

But this was back when the lottery was run using giant envelopes and hopper machines. Now the lottery is done with ping pong balls, the same way actual lotteries around the world are conducted.

Lotto prediction websites make money from membership fees and offer predictions, based on claims that they analyzed big data accumulated by past draws.

Is it possible to actually crack the system? Could someone indeed predict the outcomes of hundreds of ping pong balls bouncing joyfully around in a plastic container?

The short answer: No, you cannot.

Looking at how frequently certain numbers came out of the drawing machine in the past is useless because each draw is an isolated event that is not affected by past draws, according to Professor Kim Hyun-joon of the department of statistics and data science at Yonsei University. Kim explained that predicting which number is more likely to be picked would only be possible under the condition that there was a quota on how many times each of the 45 numbers in the Lotto can be used.

But the aforementioned websites go beyond lying about their abilities. In 2018, the official publishing body of Lotto Donghaeng Lottery revealed the names of nine companies that uploaded photos of fake jackpot tickets on their websites. Putting fake information in advertisements is punishable by law.

Despite the side effects, Lotto remains a lucrative industry, perhaps too much so.

The current law restricts individuals from buying more than 100,000 won worth of Lotto tickets at once, but Rep. Lee Sang-hun of the ruling Democratic Party said he found that the vendors frequently violated the policy. He claimed that this was because the current policy only punishes the sellers and not the buyers. In May, he proposed a bill that would limit individuals from buying beyond the limit per week -- not at once -- and would also punish the buyers.

Lotto addiction has become a substantial issue in the country. Donghaeng Lottery currently runs a counseling service, separate from the service provided by the state-run Korea Center on Gambling Problems.

Professor Chun pointed out that as the chance of winning is nearly nonexistent, the best way to enjoy Lotto is by enjoying the anticipation that buying a 1,000-won ticket can give you.

“If a person can buy a weeks’ worth of excitement for a mere 1,000 won, it‘s not a bad deal at all. But for those who actually want to turn their lives around through Lotto, it may be a torture that frustrates them every week,” Chun said.

By Yoon Min-sik (minsikyoon@heraldcorp.com)