Modelling of how lotto players select their number combinations dynamically

By examining a unique dataset, the authors build a time series model that can describe the dynamics of lotto players’ betting behaviour. The results are derived from a database maintained by a lottery operator in Taiwan, which consists of number combinations selected by players for 203 consecutive draws in 2 years, including those placed through certain systematic schemes. The dynamic models that the authors established show that the players’ number selection over time is influenced by three factors: the numbers that they chose in the last draw, the winning numbers of the previous draw and the numbers with the highest observed winning frequencies in the past. The first factor reflects the mean-reverting nature of the lotto players’ selection behaviour. The second reaffirms the well-known gambler’s fallacy in which players believe that they can improve their chances of winning by avoiding numbers that recently won. The third exhibits the players’ bias towards certain numbers with an above-average probability to be drawn. The two latter types of misconceptions are found to be more predominant in systematic betters, which suggests that the extent of the lotto players’ behavioural biases may vary according to how they place their bets.