Researchers look back in time to see how people react when lotteries are restricted and an alternative is offered.
Imagine if the money from every Lotto ticket you bought had instead gone into a 'lottery bond'. You'd still have a chance to win life-changing cash prizes, but your money would also be saved, earning interest and being paid back over time. If you don't win, you don't lose it all either.
In Belgium, where University of Auckland finance lecturer Dr Gertjan Verdickt lived most of his life, Lotto draws, like in New Zealand, are broadcast on national television each week, and this sparked his interest in how people respond when governments try to curb gambling.
The Business School researcher and co-author, Amaury De Vicq (University of Groningen), studied what happened after, in 1905, the Dutch government banned the sale and purchase of traditional lotteries but allowed an alternative: 'lottery bonds'.
"We wanted to look back in time to investigate what happens when a government tries to shift gambling from something addictive and loss-making (lotteries) to something safer such as lottery bonds. How do different socio-economic groups react?"
These 'lottery bonds' were a legal fixed-income product that let people invest in a bond while also going into a prize draw. Buyers were guaranteed their money back, plus interest, with the added chance of winning. Similar prize-linked products operate in several countries today, with different designs.
Verdickt says this kind of government-run bond scheme could be attractive in New Zealand.
"Lotto is often defended because it funds community projects, which is fantastic, but it can disproportionately draw spending from people on lower incomes. Maybe the government could move towards supporting people to put money into something where they get a safe return, and the chance for a big win.
"A premium government-led bond-style product, different to the solely prize-based Bonus Bonds which wound up in New Zealand in 2020, could fund public projects, while allowing New Zealanders to grow their money rather than lose money week after week."
So how did everyday Dutch people react when regular Lotto was banned?
The researchers drew on Dutch inheritance tax archives to create detailed portfolio holdings for 3,618 people, allowing them to track how different groups adjusted their investments after the policy change.
The researchers found that overall, less wealthy people put more money into lottery bonds, while wealthy individuals decreased their holdings.
"Although we didn't observe people's prior lottery purchases, the magnitude of the move towards lottery bonds indicates that these bonds could be considered a substitute for gambling."
Age and location mattered too. The researchers found younger people were less likely to take up lottery bonds, while older individuals showed a stronger move into them after the policy change.
The lack of interest in lottery bonds among younger individuals could be seen as a success in the Dutch government's attempt to curb gambling, says Verdickt.
Lotteries and other forms of gambling remained legal in neighbouring Belgium and Germany, and the researchers say poorer people living farther from those borders were more likely to invest in lottery bonds than those closer by, who may have been tempted across the border.
Channelling the urge to gamble
The regulation of gambling has always been a challenge for governments, say the researchers, pitting concerns for financial stability and addictions against consumer demand.
"Our study shows the Dutch government's lottery bonds were helpful; they channelled people's urge to gamble into an instrument that also encouraged saving."
He says governments like New Zealand's might consider promoting a form of 'lottery bond' as a safer alternative to playing Lotto.
"Of course, these days people have so many options online and in-person when it comes to gambling. You can't ban the urge to gamble, but you can guide people towards safer channels.
"The lottery bond offered by the Dutch government, for example, wasn't a perfect investment, but it did provide a better option for many people."
