Would Your Life Change If You Suddenly Won The Lottery?

Luke Pittard Lottery Winner

Photo: BusinessPundit.com

Looking at inherited wealth and lottery winnings: Your health wouldn’t change much, your mental health/quality-of-life would probably improve, you’d definitely drink a lot more and maybe smoke more:We examine how wealth shocks, in the form of inheritances, affect the mortality rates, health status and health behaviours of older adults, using data from eight waves of the Health and Retirement Survey (HRS). Our main finding is that bequests do not have substantial effects on health status, although some improvements in quality-of-life are possible. This absence occurs despite increases in out-of-pocket (OOP) spending on health care and in the utilization of medical services, especially discretionary and non-lifesaving types such as dental care. Nor can we find a convincing indication of changes in lifestyles that offset the benefits of increased medical care. Inheritances are associated with higher alcohol consumption, but with no change in smoking or exercise and a possible decrease in obesity.

Source: “Inheritances, Health and Death” from The Institute of Economic Research – Korea University, Discussion Paper Series, No. 1001, Jan 2010

And:

We use British panel data to explore the exogenous impact of income on a number of individual health outcomes: general health status, mental health, physical health problems, and health behaviours (drinking and smoking). Lottery winnings allow us to make causal statements regarding the effect of income on health, as the amount won is largely exogenous. These positive income shocks have no significant effect on general health, but a large positive effect on mental health.

This result seems paradoxical on two levels. First, there is a well-known status gradient in health in cross-section data, and, second, general health should partly reflect mental health, so that we may expect both variables to move in the same direction. We propose a solution to the first apparent paradox by underlining the endogeneity of income. For the second, we show that exogenous income is associated with greater risky health behaviours: lottery winners smoke more and engage in more social drinking. General health will pick up both mental health and the effect of these behaviours, and so may not improve following a positive income shock. This paper presents the first microeconomic analogue of previous work which has highlighted the negative health consequences of good macroeconomic conditions.

Source: “Winning big but feeling no better? The effect of lottery prizes on physical and mental health” from PARIS-JOURDAN SCIENCES ECONOMIQUES, LABORATOIRE D’ECONOMIE APPLIQUÉE – INRA, WORKING PAPER N° 2009 – 09

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