Thanks to the recession kindly engineered by financial whiz-kids, I find myself jobless with large debts and a house that is worth less than the mortgage. I have some redundancy money. What am I supposed to do with it? It’s not enough to pay off my debts. Financial disaster seems very likely, so why shouldn’t I just spend the windfall on lottery tickets?
J.P., via e-mail

Dear J.P.,

I’m not going to argue with you about the expected returns on lottery tickets; you’ll know that your chances of winning anything worthwhile are near zero. Let me make a more striking claim: even if you won, it would be unlikely to save you from financial trouble.

The economists Scott Hankins, Mark Hoekstra and Paige Marta Skiba are in the process of investigating that claim, looking at 35,000 winners of the Florida lottery, almost 2,000 of whom later filed for bankruptcy. The researchers find that lottery winners are more likely to go bankrupt than others – which is not surprising, since many of them don’t win much, and lottery enthusiasts tend to be poor.

More surprising is the discovery that those who won between $50,000 and $150,000 were as likely to have gone bankrupt five years later as those who won less than $10,000. Since the size of a win is random, there should have been no difference between big winners and small winners at the time they bought their ticket. It is remarkable that the additional money was not used to pay off debts.

Admittedly, winning $100,000 did seem to postpone bankruptcy by a year or two, so presumably these winners had a nice time on their way to ruin. Yet this is not an approach I feel able to recommend. Finding a job would go a long way to solving your problems. I won’t pretend that will be easy, but the odds are better than those of winning the lottery.

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“Useless tosser” is a popular epithet for cricket captains with a knack for losing the coin toss and thus allowing their opponents to decide whether to bat or to bowl first. Winning the toss is not always an advantage but, depending on the weather conditions, it can give the winner a significant edge.

Language barriers have prevented the phrase “useless tosser” from crossing the Atlantic, but the problem is familiar. When an American football game goes into overtime, it is a distinct advantage to win the coin toss. The coaches know it: when they win, they almost invariably choose to receive possession of the ball. In 2008, lucky callers won 10 overtime games and unlucky ones only four.

The very existence of the coin toss is an admission of defeat – that there is something irreducibly unbalanced about these games, some advantage that cannot be divided but can only be surrendered to the gods of chance. Chess players cannot both play “grey” – one must play white. Cricket teams cannot bowl simultaneously.

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Oscar Wilde once commented that a cynic knows the price of everything and the value of nothing. We economists often find this barb directed at us. That is unfair; economists have always argued for an analysis that incorporates the value of everything. It is also ironic, because if new “neuroeconomic” research is correct, economic models manage to incorporate value as well as price, it is the human brain that can’t keep up.

Economists have no problem with the idea that you might value a lazy Sunday afternoon more than a kiss, and a kiss more than a poke in the eye. If so, we say that the utility of the lazy Sunday afternoon is more than the utility of the kiss, which is more than the utility of the poke in the eye. Utility is not an appeal to some warm fuzzy feeling: it’s just a way of describing, in a mathematically convenient way, the fact that you won’t choose the poke in the eye if the lazy Sunday afternoon is on offer. The theory is quite capable of reflecting the range of things that humans value.

In fact, the theory allows for far more subtle discriminations than we seem to be capable of. The human brain simply may not be wired up to deal with lots of different levels of value. A series of psychological experiments, many dating back to the 1950s, shows that we cannot distinguish between more than about five degrees of … well, almost anything: sweetness in a solution; saltiness; the pitch of a note; brightness; the intensity of an electric shock; the length of a line; or the pungency of a smell. The details vary, but the level of consistency is surprising.

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I was living with my boyfriend when he got accepted to a very good university in London. He convinced me to go with him. I applied and got accepted to another very good university to pursue a masters degree that I long dreamed of. He broke up with me before I knew I had been accepted, arguing he wasn’t prepared to carry the responsibility of me leaving a life behind to go after him. Of course, it was his idea in the first place.
He has been living in London since September. I have just arrived. I still love him, but I think he has been very selfish. Should I forgive him and look him up? Human selfishness and economics have always walked hand in hand. I would love to have your advice.
CP

Dear CP,

The whole episode seems to have been very good for you: at your boyfriend’s urging, you followed your dreams and now you are realising them. Wonderful.

However, this happy fact does not translate into a compelling reason to renew the relationship. Normally I advise people that they should ignore “sunk costs” – to put it another way, there is no use crying over spilt milk. In this particular case you should ignore the “sunk benefits”. Forget the fact that it’s all worked out well, and focus instead on what this story tells you about the prospects for a happy future together.

If your boyfriend is not rational then his behaviour is self-destructive and self-obsessed. Even worse, if your boyfriend is rational – as economists usually assume – then he seems simply to have been opening up an option (to have his old girlfriend in London) and discarding it when it had no value to him.

I’d guess he thought he could do better than his old relationship in London. I’m quite sure that you can.

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This program is the last in the current series. We’ll be discussing how a regulator with a mountain of data should communicate it to worried couples seeking IVF treatment. We’ll return to the maths of the credit crunch, talk to Martin Weale about what a recession actually is - and discover the link between Guiness and statistical signifiance.

“They were displaying classic symptoms of mania. They were overconfident, they had racing thoughts, they had diminished need for sleep and heightened sexual appetite.”

John Coates, a former Wall Street trading floor manager, was describing to me not drug addicts or rutting stags, but the male traders he had supervised during the dotcom bubble.

The similarities are not just skin deep. Successful traders and dominant stags are indeed high on something: testosterone. Spikes in testosterone levels are both the cause and the consequence of a profitable day on the trading floor. After a good day, traders find their systems flooded with testosterone, which encourages them to take more risks the following day and, up to a point, to make more money.

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More or Less airs on Radio 4 this Friday at 1.30pm GMT and Sunday at 8pm GMT. You can also listen online, subscribe to a podcast, and read more at the More or Less website here.

This program is a politics special, featuring Lib-Dem chief treasury spokesman Vince Cable, former Home Secretary Charles Clark and Fraser Nelson, the Spectator’s political editor. We’ll be talking about the use of numbers to shape policy - and their abuse in politics.