Not saying you're wrong, but this is quintessentially an American statement. The rest of the world regards morality, and not law, as sacrosanct. So even if you can make money legally by exploiting someone (e.g. hedge fund extorting money from the Congo), you ought not to do it. [Yes, I know that these guys weren't exploiting anyone, just answering your question.]
Your statement is not accurate, because the "rest of the world" has different concepts for morality.
For instance, other parts of the world have moral principles more in line with "don't get caught" or "don't embarrass your superiors" or "never side with anyone against The Family" than with "do no harm".
The typical American standard of morality is set so high that no one, other Americans in particular, including the very person professing that moral standard, can be reasonably expected to live up to it. Hypocrisy abounds among those with ultrahigh moral standards. Furthermore, the details of American morals are so diverse that anyone who manages to be a paragon by one person's standard may be no more than a low-life slimeball by another's.
In contrast, compliance with the letter of the law is a far more achievable standard.
If there is anyone who is at fault here, it is the mathematically incompetent person who designed the payout system for the lottery. This was, at its heart, no different from a finance quant unraveling the details of a complex derivative to discover an arbitrage opportunity for the firm. Discovery and use of the exploit corrected the artificially high margin for the state in administering the game to one more realistic for the mathematically flawed payout model.
My thoughts exactly. Lotteries are primarily a tax on people who can't do math. So if those who can do math make money with it, the more the merrier. In fact, they'd be doing a public service if they bankrupted the lottery in question.
There used to be a sign on I-10 as you approached the Biloxi, Mississippi area. It was for a casino and said something like "Our slots have 98% payout!". I have no doubt as to the veracity of such a statement, because 2% of the money that flows through slot machines is more than enough to turn a profit from them.
There are locals casinos in Vegas that have video poker machines which pay out more than 100% with perfect play strategy, the problem is that the stakes are so low, say 25 cents, that it would take way too long to make any real money.
These lotteries are obviously a different story since you can buy as many tickets as you want.
Those sound like a 'loss leader' marketing strategy. Whoever operates the machines may lose money consistently, but they bring customers in who otherwise might not be there.
I actually am wholly opposed to government-run lotteries, mainly for the reasons you cited but also because they prey upon the poor and act as a wealth redistribution engine from the poor to the rich.
My question is why would taking advantage of this system for one's own gain be unethical? The administrators believe (apparently erroneously) that they have a built-in statistical advantage over anybody playing. So by the logic that the MIT students shouldn't exploit a flaw in the system even though it is legal because it is unethical, then the lottery administrators should not be able to run a lottery for the same reason.
