Why Does Winning the Lottery Make Your Neighbors Go Bankrupt?

We didn’t see this one coming! According to a recent study, people whose neighbors have won the lottery are far more likely to file for bankruptcy.

Researchers at the University of Alberta in Canada and Georgetown University in the U.S. have discovered that the neighbors of lottery winners have a significantly higher probability to become bankrupt as a result of increased financial risk-taking. This risk-taking behavior often includes increased consumption, spending, and borrowing.

The researchers said that “Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors.”

Or in plain English: The higher the winning amount of your neighbor, the likelier you are to become bankrupt!

The researchers explained this weird phenomenon through the social tendencies of people. The researchers believed that people are attempting to match the increased spending of their neighbors so that they don’t appear to be lower on the social ladder.

Over 7,000 lottery winners were cross-examined with bankruptcy filings in an unnamed Canadian province for a period of 10 years. After crunching all the numbers, the researchers concluded that when a person who lives in a small neighborhood wins the lottery, there is an increased probability that other people in the neighborhood will file for bankruptcy.

The increased spending among non-winners is linked to displays of wealth, such as new cars or renovations. The study found that less-visible spending, such as furniture, did not cause neighbors to take more financial risks.

However, before you go on and blame your lottery-winning neighbors for increasing your chance of becoming bankrupt, keep in mind that you can also play the lottery!