6 ms·

You could make this pay out better than actuarially-fair prizes, by having the savings fund invest some of the lottery jackpot in call options on a diversified

You could make this pay out better than actuarially-fair prizes, by having the savings fund invest some of the lottery jackpot in call options on a diversified portfolio. That way, the fund would be able to pay out more prizes when the markets are doing well, while still keeping a "baseline" level of draws at all other times. The reason why this would provide better-than-fair payouts is that these options are effectively on the capital markets line, i.e. investing in them is essentially removing risk that other market participants would otherwise have to face!

bovine3dom 8y ago
So kind of like https://www.nsandi.com/premium-bonds https://www.nsandi.com/premium-bonds ? Those are government bonds, but it's not far off your idea. Edit: for clarity, the effective rate paid does vary over time according to interest rates, which usually have some relation to how well the markets are doing.
- walshemj 8y ago
  Its 1.4% at the moment - which is good for the UK
- zozbot123 8y ago
  > interest rates, which usually have some relation to how well the markets are doing. Uh, maybe? There is a positive correlation of sorts, but it's nothing to write home about. It doesn't seem like this product was designed with any attention to the potential of better-than-fair payouts.
btown 8y ago
... or the operators could simply invest the float for their own benefit above baseline, which is no different from what the operators of a fixed rate savings account might do.
breck 8y ago
A little over ten years ago I cofounded a startup in Boston that was attempting to do something along these lines. We couldn’t believe how much money people were spending on such a bad investment. We were going to sell our own scratch tickets that had a positive EV. You’d scratch a ticket and reveal a code which could be redeemed for a fractional share(s) of stock in one of a basket of companies. The hope is we’d come close to the entertainment value while at the same time helping people save and earn a massive jump in ROI over regular scratch tickets (which paid 50 to 85% or so). The numbers would work at scale if people liked it. We weren’t the right people to do it, but I hope other people someday will offer something similar. Stockcards is something a little close to it, which is cool to see.
- SilasX 8y ago
  Amazing! I had a similar idea, which was to simulate lottery tickets by selling shares of far-out-of-the-money options. They would rarely pay out, but when they do, it would be a lot.

bovine3dom 8y ago

So kind of like https://www.nsandi.com/premium-bonds https://www.nsandi.com/premium-bonds ? Those are government bonds, but it's not far off your idea. Edit: for clarity, the effective rate paid does vary over time according to interest rates, which usually have some relation to how well the markets are doing.

walshemj 8y ago
Its 1.4% at the moment - which is good for the UK
zozbot123 8y ago
> interest rates, which usually have some relation to how well the markets are doing. Uh, maybe? There is a positive correlation of sorts, but it's nothing to write home about. It doesn't seem like this product was designed with any attention to the potential of better-than-fair payouts.

btown 8y ago

... or the operators could simply invest the float for their own benefit above baseline, which is no different from what the operators of a fixed rate savings account might do.

breck 8y ago

A little over ten years ago I cofounded a startup in Boston that was attempting to do something along these lines. We couldn’t believe how much money people were spending on such a bad investment. We were going to sell our own scratch tickets that had a positive EV. You’d scratch a ticket and reveal a code which could be redeemed for a fractional share(s) of stock in one of a basket of companies. The hope is we’d come close to the entertainment value while at the same time helping people save and earn a massive jump in ROI over regular scratch tickets (which paid 50 to 85% or so). The numbers would work at scale if people liked it. We weren’t the right people to do it, but I hope other people someday will offer something similar. Stockcards is something a little close to it, which is cool to see.

SilasX 8y ago
Amazing! I had a similar idea, which was to simulate lottery tickets by selling shares of far-out-of-the-money options. They would rarely pay out, but when they do, it would be a lot.