A No-Lose Lottery


The staff at the Freakonomics podcast does an amazing job of uncovering interesting business ideas.  Two weeks ago the episode was “A No-Lose Lottery“.

The idea is incredibly simple, but feels enough like a lottery that it is illegal in most countries.  It goes like this:

Create a savings account, where the savers are guaranteed to not lose their savings (if not earn a small interest rate), but where the bulk of the earnings from that capital is randomly given to one or more of the savers.

Or in other words, if implemented by a bank, rather than pay you $1 in interest for your $1,000 of savings (0.1% interest), pay 999 accounts $0 and 1 account $1,000.  Or of 1,000,000 accounts, pay 999,900 accounts $0, 100 accounts $1,000, and 1 account $1,000,000.

People like lotteries.  It adds a bit of excitement to the masses who are unlikely to ever earn $1,000,000.  This idea costs basically nothing to implement.  It takes basically nothing from anyone.  It’s an economically reasonable choice over a normal savings account, much more than today’s state-run lotteries.

The only downside is that lotteries earn a lot of money for governments, and as such most governments make private lotteries illegal.

Listing to the podcast, I can imagine some imaginative entrepreneurs and lawyers finding workarounds for those laws.  This is a win-win-win to create more savings, pull a few people out of poverty, and not hurt anyone in the process.

If you have ideas on how to implement this in the U.S., let me know in the comments below.  If you are implementing this outside the U.S., in a country that doesn’t yet run a lottery, let us know about that too.

[Image from Flickr]
By "Luni"


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