I created a startup hacking the psychology behind playing the lottery to help people save money. We've given away $500,000 to users in the past year and are on track to give out $2m next year. AMA about lottery odds, the psychology behind lotterie...

Where does the lottery/jackpot money come from? How is it 100% free? Does this app take say a few cents from every account per month or something to fund this lottery?

A traditional bank pays a tiny amount of interest to all of its depositors. We work with online banks that pay a higher yield and we use that yield to pay out most of the prizes. We are skewing the interest payments. This is a very common thing outside of the U.S. It's called Prize Linked Savings (https://en.wikipedia.org/wiki/Prize-linked_savings_account).

For the $10 million jackpot we work with an insurance company to be able to offer that.

Great business idea! We have issues in South Africa where the poorest people play the lottery. I don’t think it’s that unique to any one country, but I work for the largest bank in Africa and wondering if they might be interested in such a concept.

Check out http://beniverson.org/papers/MaMa.pdf! It was tried in South Africa and got so popular that the lottery wanted to shut it down. Sad really

No way! I’ll check that out. Sad the those Who profit off the poor would try to stop some thing that helps the poor

Agreed.

Why $10 million if there isn't a jackpot winner every week / month / year etc? Why not $1 million? Or $1 billion?

I'm sure the monthly insurance premium on $1 billion was more than they wanted to pay.

Exactly. A decision between how much it costs us and how much value we wanted to provide. We want to scratch the same itch that users scratch from playing the regular lottery and felt that $10 million was the right number given the tradeoffs

I'm Canadian, and I have heard of making money by putting money in a TFSA (tax free savings fund) and a percentage of that going to a stock portfolio that the app manages full time for you to try to earn max dollars. Is that sort of the same?

I don't know too much about TFSAs, but my understanding is that a TFSA is similar to an IRA in the U.S. This is different than Yotta.

It sounds like a TFSA is a special account you can save money in or invest in that grows tax-free as an incentive from the government to help people save for retirement. Yotta isn't involved in stock trading or investing, at least right now.

With Yotta, you can't lose any money whereas whenever you invest in stocks, there is a risk of loss.

How are you different to the UK Government's Premium Bond, originated in 1956 and running still. And also proven through a massive amount of research to show that you'd be better off putting your cash in a normal savings account.

This is such a con.

We are in the US and we provide more of a front-end gamified experience around the product. It's more fun, more social, and a more engaging of an experience.

Whether or not it is better than other savings accounts depends on the value coming from the prize linked savings program and also the fun of it. We score very highly in both those categories.

I literally just created an account to shoot you a question!!

I originally saw yotta on Graham Stephan’s YouTube channel and signed up shortly afterwards. If someone wins the $10m are you guys going to be bankrupt? Should I be worried?

Nope we partner with an insurance company who would pay out the jackpot when someone wins.

How is that $10m lottery structured? I'm curious as to how/why insurance would cover it

You can get insurance to cover many things like this. If there's a 1% chance of the jackpot being hit, then insurance would make money if they charged 2% of the jackpot. And this is worthwhile for Yotta because it's a fixed cost -- they'll never have to pay out ten million dollars.

It's worthwhile for the insurance company because they have many of these bets. So, on average they make money. The few losses they have are masked by the many wins. Yotta, on the other hand, has few bets, so the impact of a single loss is far more harmful.

This is exactly right

What's to stop me from making my own yotta, getting some jackpot insurance, very poorly marketing the product, and then splitting the money when the only user / my friend eventually wins the jackpot?

The expected value from the chances of you winning the jackpot would be lower than the insurance premiums you are paying.

Hi, Adam. I've been thinking of joining something like this unofficially (susu). When I go on your web page, it says win up to $10mil but it also says users have already won $500k.

So, does that mean the grand prize has yet to be won? Once it is claimed, will the process start over with a new grand prize? Finally, can you be a winner of, let's say $100, then later be chosen as a winner again? Thank you!!

Correct - we haven’t had a grand prize ($10m) winner yet. We anticipate keeping the grand prize at $10 million after someone wins. We currently partner with an insurance company who would pay out the jackpot when someone wins. You can win multiple prizes every week -- For example, say you deposit $250, you would earn 10 recurring tickets to our weekly drawings, this week 1 ticket could win you $0.10, 1 ticket could win you $10, and the other 8 tickets could win $0. Next week tickets reset and those 10 tickets could earn you prizes again.

On the intro screen when it says Earn 1 recurring ticket into our weekly number draws for every $25 you save

and For deposits over $5,000 earn 1 recurring ticket for every $25 you save

What’s the difference between those?

This looks like a typo. For deposits over $25,000, you get a ticket for every $150. We will fix this thank you for flagging!

Cool idea, how do my odds of winning any prize stack up against powerball? Sure I have zero risk in a savings account but if the chances are slim to none I’m not sure if it scratches the same itch I get from buying a lottery ticket? If there’s a decent chance at even winning like a dollar or something it piques my interest.

The odds of winning a prize with Yotta are lower on an absolute basis, but the expected value is much much much higher.

Just as important as the odds of winning are the odds of losing and the risk you are taking. With the traditional lottery, you are risking money. So even though your odds of winning are higher, the expected value is dreadful because you're paying something to get those better odds and the amount you're paying for those better odds is way too much on a mathematical basis.

The expected value of a lottery ticket is THE WORST gamble you can make on a mathematical basis. It's far worse than blackjack, roulette, crap, etc.

Didn’t quite answer my question, but looked it up: https://www.withyotta.com/official-rules 1 in 9,913 chance at winning $7 and 1 in 867 chance at winning $.60.

Yup that's right. Per ticket

I love this idea. I have hated the lottery for years and think it should die because it exploits the poor and uneducated.

Where do you think you can make the biggest impact in terms gaining adoption, particularly among those who need to prioritize saving?

The lottery definitely exploits anyone who is playing it with the hope of making money. If you're playing for entertainment and you know you're likely to lose half of what you put in, that's fine.

The craziest part is that it's monopolized by the government, meaning there is no competition, which is what makes it such a terrible value for people because they don't have to compete to make the odds reasonable given the risk.

We think Yotta can be appealing across all income demographics, but in terms of highest impact, we really hope we can help people save money instead of waste money on lottery tickets. With Yotta, you get the thrill of the lottery but even if you don't win, you don't lose, and over time you'll build up a substantial safety net.

Thank you for responding. I had an office in downtown Seattle where there were a lot of folks living in poverty, and I think about how there were lottery ads in a bunch of storefront windows. How can you combat that kind of marketing?

We have to convey that with Yotta, you can scratch the itch of playing the lottery but in a responsible way. Freakonomics calls it a "no-lose lottery" which I think really grabs people's attention.

What regulatory issues did you have to deal with in order to run a “lottery” such as this? I remember listening to the freakonomics podcast years ago and they were describing how the U.S. Government made running such a venture difficult. Have things changed since then or were there things you had to do in order to comply with the legal requirements that made it harder? What laws would, if changed, make it easier to set up similar prize linked savings or similar ventures?

The American Savings Promotion Act (https://en.wikipedia.org/wiki/American_Savings_Promotion_Act) was passed in late 2014, which formally legalized the concept at a federal level. There are more nuances to it, but that's the gift.

We are not a lottery. We operate as a sweepstakes, and not much has changed with regard to sweepstakes laws. To operate as a sweepstakes, we have to allow people to enter for a chance to win without making a deposit. We allow this in our official rules. People can mail in entries to us.

Funny how mailing in an entry with a 55 cent stamp is more costly than depositing the $25.

Exactly why we don't get many mail-in entries

Do people ever mail in entries?

Yes but very rarely.

What are the odds of someone making a net profit from playing the lottery?

I know many people that play, and you'll likely win SOMEthing if you play long enough. I've always believed that ultimately you're losing money, and even if you win you may spend that money on more tickets. Or are there people who win once and quit while they're ahead?

It's fun (or depressing) to look at a lottery simulator and see just how bad your chances are.

Like this one:

https://www.cuandomevaatocar.com/en/powerball/simulator/ or other ones online

That's neat, thank you for sharing! I quit playing the lottery years ago, but it's hard to convince people they're wasting their money. It feels cruel to rob them of hope, even though the system is designed to take advantage of them.

Exactly right

The odds of making a net profit are better the less you play it. If you play the lottery on a consistent basis throughout your life, you have almost no chance of making a net profit.

Any time the house has a mathematical edge where your expected value is negative, the more you play the game, the more likely you are to lose.

There are many people who quit while they're ahead, and you're more likely to be ahead if you don't play it consistently.

Adam, this is a fantastic idea.

A lot of people (without financial troubles) dismiss Lottery players as fools, because “the odds don’t make sense”.

They don’t understand that the person buying that ticket is likely feeling severe stress about money, and is basically buying a period of time during which they can hope it all changes. It’s respite from the pressure.

Your idea is brilliant, and I’m thrilled to see the YC backing, strong traction etc. Great job.

How much of a challenge has dealing with gambling regulations, on top of all the regular financial regulations, been? Or has that not been an issue because of the ‘no lose’ status?

Keep it up!

Thanks! We operate as a Sweepstakes so basically you just need to have a way to enter for free. There's more nuance to that but you can see it in our official rules (https://www.withyotta.com/official-rules)

What is the reasoning behind why a lottery would have you just win another ticket? Is it just to make you go get another ticket and/or give you the false sense of a win?

Thanks

Psychologically there is a binary component to where winning something, even if it's just a ticket or something else very small, provides the dopamine hit necessary to get you to play again.

People often buy scratch offs that cost $2 and even if they "win" $1 from the scratcher, they feel excited. Rationally this makes no sense since they lost $1 on the game, but we aren't rational!

Lots of very educated people work with psychology and neuro-science to game our minds and get people to do things against their interest, you game minds to get them to do something in their interest.

Good luck.

Thank you!

I haven't seen a lottery ticket that pays out less than you buy it for. If you spend $5 on a ticket you either lose, or minimum win $5.

A lot of scratch offs have prizes less than what you pay for it

My initial thought is this seems to be geared toward 2 distinct groups of people, 1) those who are actually interested in fiscal responsibility, savings accounts, that kinda thing and 2) people who enjoy gambling and games of chance. From a Venn diagram perspective, I’d be really curious to see how much those 2 groups overlap? Not much of a question lol sorry but curious about the research there. Or maybe I’m just totally off with this assumption of who you’re appealing to

You're pretty spot on there. Sadly I think group #2 is much bigger, and these are the people a product like this benefits the most since it helps them scratch the gambling itch without gambling.

Why would I choose this over a more well know HYS account? (ie discover or ally) Your bank pays interest at 1/3 the rate of other insured banks with high interest rates.

The 1/3 figure you're using only looks at the amount we pay on a monthly basis no matter what. There is huge upside when you factor in the prizes and on an expected value basis, we are actually paying more than Ally/Discover/Marcus right now.

What are your average prize winnings per year? Are you saying overall all winning will out pace 3x interest rates?

We pay at the high end of savings accounts out there on the market on an expected value basis. How much you win is a function of how lucky you are and how much you save.

Basically you do what premium bonds do in the UK right? Save money and give people a chance to win big. If and when they want they take their money out.

What is the average interest people get? And how does that compare with putting the same money in a savings account? Also, what are the odds for the top prize? And lastly, compared to inflation, do your clients actually make money?

Yup exactly. The average changes but at the current prize rate and current odds, it's around 1.7% on average.

The odds for the top prize are 1 in 8 billion per ticket. This is the $10 million jackpot.

Will Yotta ever have a credit card that gets us tickets? Referrals can be tough after a while.

Yes we will likely focus on releasing a secured credit card at some point. To help people build their credit but not allow them to carry a balance.

Wonderful idea. Thank you by the way. My wife and I have saved more money than we ever have with Yotta. It’s a great idea.

Awesome! Glad to hear it!

Did you start this company because you needed to pay for gas, but some miserable old person ahead of you had like 40 lottery tickets for the cashier to go through?

That would be a good story. Unfortunately not. Super interested in personal finance and behavioral psychology and so using the psychology of the lottery to help people save as very exciting to me.

Isn't this just Premium Bonds?

We modeled a lot of our product after Premium Bonds. So it's similar, but with a more fun game mechanic and provided to people in the US. Premium Bonds is only for people in the UK.

Do you sell people's information?

How are you paying the salaries of employees or repaying debts‽

We do not sell any information.

We earn yield on the deposits (similar to a traditional bank) and are going to be launching other financial products very soon that generate revenue.

What are your yield earnings compared to what your individual account holder is earning.

We pass everything we earn through to our users

Do you have a way for people to invest in your business model now other than opening a savings account?

You said you plan to offer other services to generate revenue. What are some other these services going to be?

Do you do any kind of consulting for people that may win a larger some of money?

We are launching a debit card where we earn interchange revenue from the merchants when people use their Yotta card. That's one.

We don't do any consulting, no. I'm not sure I understand your first question. Can you rephrase it?

Can I invest in your business?

You are not a public traded company and just wanted to know if it's possible to invest.

Unfortunately not right now

Correct me if I’m wrong, but don’t debit cards have pretty low interchange fees thanks to the Durbin amendment?

Depends on the size of the bank. With banks with less than $10B in assets, it actually is still pretty good.

When does the Yotta debit card come out!? I’ve been a faithful user from the moment Graham posted his video about it and have a made a few videos of my own. Love the app! Thanks for making it happen!

Thanks for the support! Appreciate it. We will hopefully have virtual cards out in January and then physical cards coming in March.

What keeps you honest in regards to rigging the jackpot? How is it randomized? Thanks!

We have a double blind system with our insurance partner. They pick the numbers. They can't see users' picks. We actually want someone to win the jackpot because it would be great publicity for us and we are already paying the insurance anyway.

Are funds in Yotta are FDIC insured?

Yes the funds are held at Evolve Bank & Trust, member FDIC. Your funds are insured up to $250,000 just like they would be at any other bank.

Can you pay that 0.2% guaranteed interest weekly (or daily)? I've been using for awhile and would have earned another ticket earlier last month but had to wait until 12/1 to earn that extra interest that would've gotten me to another $25 in balance.

Ah unfortunately it gets to be too complicated to do it more frequently than monthly

Is yotta only in America?

Correct - we are only in the USA right now but we hope to expand to other countries, eventually.

Are you worried that bigger fin tech companies may steal this idea and do it with bigger rewards and more perks?

I expect they will try to do something similar, but we believe our focus on the savings product specifically and this being our bread and butter will allow us to stand out no matter what.

I currently stash my emergency savings "fund" with Marcus. Their rates have sucked over the past year but I can access fund quickly if I need to. How long does it take to withdraw from Yotta?

Typically 2 business days once the funds have settled. It takes 7 business days for a deposit to hit your Yotta account for fraud prevention reasons. But once it hits it takes 2 business days for a withdrawal to return to your other account.

What is your favorite sandwich?

Chic-fil-a spicy chicken. You?

How do you prevent someone from just withdrawing and redepositing? If I put in $1000 can I withdraw an re deposit to play again?

If you withdraw, you lose your top tickets for that week. We have mechanics like that to prevent people from gaming the system.

How come it says win up to 10 million yet you've only given out $500,000 this year?

No one has won the jackpot yet. But smaller prizes are won very frequently. The biggest prize won so far is $5k. Odds are someone will win a Tesla sometime soon.

Is there an option to take equivalent cash value instead of a Tesla? I really don't want a Tesla, or the headache of having to liquidate it.

Yup that option is there

Awesome. I've been a member for about a month now. I've only got about $100 in my account right now but it's better than nothing. I heard about y'all from Graham Stephan.

Graham is great!

In GA, the lottery earnings go towards funding college scholarships. Namely the GA Hope scholarship which was pretty nice back in my day. Just needed to maintain a 3.0 and your in-state tuition was covered.

Concept being.. a state run lottery collects gambling $ that would have been spent anyhow.. At least they are going to a good cause. Essentially a sin tax.

Do you think your methodology is net benefit better for society and in what way?

If we can divert lottery dollars to savings accounts, then those gambling dollars to go something that helps build a safety net for people. There's no 6% commission from the stores selling the tickets. A lot of people buy lottery tickets who don't have an emergency fund. We want to change that.

I can’t imagine the legal and government regulations that you would have to navigate to set this up. How difficult was it?

There are a lot of companies that make it easier to work with banks now, but it still isn't easy. On the sweepstakes side, we worked with a sweepstakes lawyer who helped us setup the structure of the prizes and how that would all work. All in all, pretty difficult, not crazy difficult.

Average household spends $53/month on lottery??? That can't be right. That's insane.

Tell me about it, I had a hard time believing the figures when I saw them myself. Here are a few resources with some stats on just how much Americans spend on lottery tickets every year.

https://www.bls.gov/opub/ted/2019/how-much-money-do-americans-spend-on-lottery-tickets.htm

https://www.cnbc.com/2019/12/12/americans-spend-over-1000-dollars-a-year-on-lotto-tickets.html

So to clarify, you give zero interest to people in order to fund a lottery so that a small amount of people get larger amounts of money from that "prize pool"?

If true, sounds like a decent idea. Interest in banks is so low that I couldn't care less about it, and a chance to win a significant amount sounds more appealing.

If false, this sounds sketchy as fuck lol

No one earns zero interest. Even if you never win a weekly cash prize we currently pay a 0.20% savings bonus to everyone which is well above the national average interest rate.

Have you seen McMillions, the story about how the McDonald's Monopoly promotion game was actually rigged for insiders??

How do we know Yotta isn't going to just give $10 million to a friend of an employee?

We have very strict rules with our insurance partner about how the numbers are drawn and how entries are submitted, and who can win prizes. The risk is never absolutely 0 but we are learning from the mistakes of others to mitigate risk to as close to 0 as possible.

Have you guys seen https://pooltogether.com/ ? Built on top of ethereum. Interested in exploring yields you can generate in DeFi?

Yeah we have seen this. Haven't dug too deep but it's a similar concept in the crypto space.

This sounds like an amazing idea!

So it says in your post for every $25 deposited you get a recurring ticket? Do these reoccur forever or is there an expiration? Wouldn't the person with the most amount of money in savings (therefore the most $25 deposits), have a much higher chance of winning every week than everyone else?

Yeah they would have a better chance, but that doesn't take away from the other people (except for the pooled prizes). Same way if you save more money in a vanilla savings account you get paid more interest

Is there a correlation between users who have won more than $1000 and the rate of withdrawals rate? If I win a substantial high amount, and I withdraw said amount and blow it on goods and services, what does Yotta do to inform the winner about behavioral changes when it comes to money?

We actually see the opposite. People who win withdraw less. This makes sense because they feel the excitement of winning and they want that feeling again.

We don't know what people spend winnings on if they do withdraw it, so we can't do anything right now to inform or analyze behavior change with regard to spending. Maybe in the future!

This is such a great idea - I hope to everyone's sake that it catches on!

Something that has always bugged me about playing the lottery is when people think they have "doubled their odds" or "doubled the chance" of winning when they buy two tickets. I think of it this way - if you have a one in five billion chance of winning a lottery where you have to match numbers to win, buying two tickets just means you have two 1-in-5-billion chances to win. Your odds aren't really any better, you just have two opportunities.

I see it as different from a raffle - say there are 100 tickets for sale - the more tickets you buy the better your chance because the winner is definitely being selected from that group, so the more tickets you have, the better.

Is there any math to back this up, or have I been wrong all this time? I feel like this has a lot to do with the psychological side... If you think more tickets = "better odds" then you are probably more likely to spend more and more...

If you buy more tickets, your odds of winning are higher. You likely will win more money. But you're also likely to lose more money. These things offset and you end up with the same expected loss on a percentage basis. And if the odds are against you, it just makes it more likely you will lose more on an absolute basis

On average, do jackpot wins resulting from 'lucky dip' random number selection earn bigger prizes than number selected for specific reasons? (i.e. because they tend to have to share the jackpot less often)

You're better off picking numbers that are considered "unlucky" because then you, on an expectation basis, have less people to split shared prizes with

How does Yotta adjust the interest rate it pays users as the federal funds rate changes?

We adjust our prizes based on interest rates so we adjust up and down with fed funds

Kind of confused on how the company earn money and their employee, especially when giving such a huge money,

how do you pay the insurance?

We earn yield on our deposits and are also working on other financial products that will generate revenue. Similar to how banks make money.

What is the overall payout in terms of dollars gambled vs dollars won? You can express it as a range as that info is somewhat business sensitive.

There are no dollars gambled. No money is ever at risk - it sits in an FDIC insured savings account. I don't want to put out a number here but it's important to note that people aren't risking their money.

I like the concept but what's your rebuttal to you front loading all the good prizes for promotion? I.e. as more people sign up, the prizes become significantly lower for everyone making the service less valuable.

We will always maintain our all-in value competitive with the highest yielding savings accounts on the market.

Hey Adam!

How would you describe the sustainability behind this model?

I see you mentioned that a 10million jackpot won't break the company, so if it's not that, what is your biggest threat to Yotta?

It's a very competitive space. If a big FinTech player launches a copy cat product, that is a threat. We believe we can overcome it and continue to deliver a better product experience, but it is a big threat

In traditional lotteries, who really wins? Are the states and municipalities actually getting significant income from them or do banks and middlemen take big cuts of the profit?

Yes states generate billions a year from lottery tickets. Most stores that sell the tickets also earn 6%. The losers are most of the people who buy the lottery tickets.

Just curiously, are you looking to expand this idea? I feel like I have a direction in which this model would really work well. Given your expertise it would be relatively easy to implement, along with my CS skills. Would love to have the chance to discuss, unless you guys are focused on this vs. new ideas.

Cheers

Shoot us an email at [email protected]

I don't believe this will have a meaningful impact on society without advertising at the same level as state lotteries. It is so obvious that states should replace their lotteries with your no-lose lottery, but this will require reversing the vested interests and status quo. Will this just be another scheme to make the Freakonomics listeners feel smart and morally superior, or do you think it can be scaled to have impact?

I think you're right, but I also think we will scale it to have the impact. We've tried to build the product in a very social way to allow it spread organically without the need for huge advertising expense. So far, that's worked very well.

States make a lot of money from the lottery so they don't want to lose that, which is why they haven't done a no-lose lottery concept themselves.

Do you have any plans to offer this service in the UK?

Eventually, yes, but right now we are very focused on the US market.

How do the tickets work exactly? If I deposit $25 for 1 ticket, is it recurring or do I have to deposit another $25 to get a ticket for next week?

You got it - they are recurring tickets. If you deposit $25 today you will have 1 ticket in your account for this week’s drawing, 1 ticket for next week’s drawing -- 1 ticket into every weekly prize drawing until you withdraw the $25.

Who did you have design that poster you’re holding up with your name? They seem really talented

I'm an expert in chicken scratch. Maybe a chicken scratch AMA will be my next one.

If I have money on a visa gift card, can I transfer this money to Yotta?

Unfortunately not. Needs to be through a bank ACH

Love this! Do you see a way to may this work where interest rates at 0% or worse such as many countries in europe currently?

I think the concept works better when rates are so low, since savings accounts are so unappealing and the chance of winning can be more tempting.

Why did you introduce balance tiers to reduce the rate at which tickets are awarded for balances in excess of $25K?

(I'm asking this under the assumption that Yotta Savings has an objective to maximize the total amount of deposits, which may not be the case.)

We have some split prizes that are shared amongst all winners and we didn't want super large balances to take away value from some of the smaller balances.

Long tail large balances are also expensive for us.

You’ve invented Premium Bonds?

We've brought something similar to the US!