Would You Buy a New Car If Your Neighbor Won the Lottery?


A new study of Canadian lottery winners concludes that winning a big prize increases the likelihood of subsequent bankruptcies. But not for the prize winners themselves. Just for the folks who live next door: “We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners’ close neighbors.”

OK. That’s interesting. The problem is what comes next when the researchers try to explain why the neighbors of lottery winners go bust. Here is Tim Lee’s nickel summary:

The clever study is one of the first to provide statistically rigorous evidence for a claim that seems plausible but is hard to prove: that rising inequality causes people to spend beyond their means in an effort to “keep up with the Joneses.”…And while big lottery winnings are rare, the study could have much broader implications. Critics of income inequality have long argued that large income disparities make people unhappy. The Philly Fed study provides further evidence for this point of view. While it focuses on lottery winners, the same basic problem is likely to arise anytime some people enjoy rapid income growth at the same time that others’ incomes are not rising.

I’m not so sure about that. The researchers actually found two things:

  • Bankruptcies increased among the winners’ near neighbors.
  • Bankruptcies didn’t increase among neighbors who were slightly farther away.

And when I say “slightly,” I mean slightly. The map on the right shows the difference. A typical lottery winner is shown by the star. “Inner ring neighbors” are ones with the same postal code, in purple. “Outer ring neighbors” are the rest of them. In other words, a separation of literally 50-100 feet is enough to wipe out the entire effect. If large income disparities really do make people unhappy, it only seems to do so if they live within a few doors of some conspicuously consuming rich person. Needless to say, this is fairly rare given the fact that rich people tend to live in entirely different neighborhoods than poor people.

Now, I suppose you can argue that being exposed to conspicuous consumption on TV produces the same feelings of envy as living next door to a friend who just won the lottery and bought a shiny new car. But you’d have to produce some evidence for that, since they’re very different things. For the time being, count me as skeptical.

FACT:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn't fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2019 demands.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.