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The Case for Buying a Powerball Ticket

13 points by khc 12y ago

pixelcort 12y ago
"It’s actually more complicated than that, because that calculation doesn’t account for the fact that there could be multiple jackpot winners who must split the pot." In other articles, it's been said that when the jackpot is high, the expected value actually goes down due to the increased chances of multiple winners.
zorrb 12y ago
This article is trash. First he makes a dumb argument that comes down to, what's $2 in exchange for the warm fuzzies of imagining where you'll move with that money. And then goes on to explain why now's the best time to waste your money if you like wasting your money because of the ridiculously obvious point that the jackpot is larger now. This is abysmal garbage and the author should feel bad and so should everyone who upvoted this. I rarely ever get mad but the lottery is one of my biggest pet peeves, and this brings no insight or elaboration on the issue besides, "gee wouldn't it be great to instantly have millions of dollars."
- jmiwhite 12y ago
  There are a number of things you can spend a small amount of money on with ultimately nothing to show for it but some brief enjoyment. It seems the author is encouraging his (non-addict, non-destitute) audience to reframe their thinking about what the lottery provides as entertainment value rather than simply being 'a tax on people who are bad at math' - even if you don't ultimately play, you don't have to view those who do in a negative light. That's certainly how I used to feel, but once I started thinking of it as a lark rather than a blight, it just didn't seem like that big of a deal.
- themartorana 12y ago
  Hasn't it been shown time and again that the act of thinking positively about your future often carries over in to your real life, making you happier in the present? Besides, I could drop $100 on Blackjack in AC once a year or $2 every time the jackpot climbs above $500m. My (minuscule) appetite for gambling is satisfied in both situations, and I save $98/year :)
Chinjut 12y ago
I hate the argument that, on the grounds that the aggregate money spent on lottery tickets is typically larger than the aggregate money paid out on lottery tickets, purchasing a lottery ticket is inherently irrational. The same is true of insurance, yet few people consider the purchase of insurance to be intrinsically irrational by the same argument. People are free to have whatever preferences they want. Some people prefer a life with a slim possibility of a tremendous windfall (and but a negligible loss in the more likely alternative) to a life of certain continuation with the status quo grind. More power to them.
- sopooneo 12y ago
  There is a fundamental rationality to insurance that is not present with the lottery if you accept the marginal utility of money to an individual. Your top dollar is worth less to your than your bottom one. So it is worth sacrificing the first to safeguard the second.
- dragonwriter 12y ago
  > The same is true of insurance, yet few people consider the purchase of insurance to be intrinsically irrational by the same argument. The offsetting argument for insurance is that it provides risk management against unaffordable, catastrophic expenditures -- it is a trade-off of a certain expenses, against the risk of a much larger uncertain expense, with an expected net cost in financial terms, but that it is rational in some cases given the decreasing marginal utility of net income (which, conversely, means that there is an increasing marginal cost of high expenses.) Of course, the trade-off in the lottery is you are paying a certain, low cost for a chance at unlikely larger payoff -- this has not only a negative expected financial value, but -- given the declining marginal utility of income -- an even larger expected negative utility in most cases, considering utility of money on its own. Of course, it may be rational if the utility provided to a particular player by "playing the lottery" (the entertainment value, etc.) exceeds the expected net disutility associated with financial expectations.
  - Chinjut 12y ago
    If some people do, in fact, prefer situations in which there is a slim chance of tremendous windfall and large chance of small loss to guaranteed status quo, who is the economist to tell them "No, no, this is incompatible with the theory of diminishing marginal vNM-utility. Your preferences are misguided!". Utility is just a construct for describing people's preferences; to turn around and demand that people's preferences ought change to match some textbook model of utility is to put the cart before the horse. People can reasonably have all kinds of different personal preferences, right? If your theory doesn't account for that, that may not be an example of muddled thinking on your subjects' part; it could just as well be a problem with your theory. I mean, what is actually factually misinformed about preferring the risk profile afforded by a lottery ticket to the alternative?
oaktowner 12y ago
The lottery is a tax on people with bad math skills.
- Chinjut 12y ago
  You don't have to have bad math skills to play the lottery. For example, I am a mathematician who has on occasion chosen to purchase lottery tickets. And I see nothing at all irrational about this.
  - doorhammer 12y ago
    I used to buy one powerball ticket a week. About ten guys at work would pool together and buy ten tickets on the pretense of splitting it if we won. We saw it pretty much exactly the way the article described. There'd almost always be an hour or two talking about what would be an interesting use of that much money, or talking about how stupid we were for playing the lottery, and it'd come back up over the work day. We were paying for group amusement, and I still remember having a lot of fun with those conversations. I don't regret it any more than I regret spending money on a soda here or there during the same time period (long term health wise I regret the soda way more :) ).
  - oaktowner 12y ago
    Oh, I'm not above buying the occasional ticket, either -- for that matter, I like playing Blackjack and view any losses incurred as entertainment. However, people at the lower end of the income spend a lot more of their money (proportionally) on lottery tickets. [1] And states are increasingly dependent on those revenues [2], which means in effect we've got a system where our schools become dependent on our lowest income population wasting money on what is essentially a pipe dream. Note: I'm not saying "we've got to stop lotteries!" As I said: I play myself. Just noting that we are funding our government on the backs of people who are making what is arguably a terrible investment. In other words: lotteries are a tax on people with bad math skills. [1] Lots of studies back that up; there's a pretty good list here: http://stoppredatorygambling.org/blog/category/research-center/lotteries-who-really-plays/ http://stoppredatorygambling.org/blog/category/research-cent... [2] http://taxfoundation.org/article/gambling-tax-policy-states-growing-reliance-lottery-tax-revenue http://taxfoundation.org/article/gambling-tax-policy-states-...
kryptiskt 12y ago
I don't think there's anything wrong with buying a lottery ticket if its cost is a trifle for you. Buying one when the expected value is positive is not a sound gamble however. Suppose there is a jackpot of $300M and you have a 1 in 150 million chance to win. It's obvious that you have an edge, so you calculate how large part of your bankroll you should bet with the Kelly criterion[1] and get: f=3.33e-9 Oh well, if you are a centimillionare you can buy a ticket and be rational. [1]http://en.wikipedia.org/wiki/Kelly_criterion http://en.wikipedia.org/wiki/Kelly_criterion
- jrs235 12y ago
  You need to factor in ticket price, odds of winning, cash payout, taxes. Powerball is $2 a ticket. The cash payout is around $338 million. The odds of winning with a ticket is about 1 in 175. Assume taxes will take half. You shouldn't buy a powerball ticket using reason unless the cash payout is at least $700 million. Problem then is so many people are playing there's likely more than one winning ticket which would mean the numbers don't work. Edit: the payout tonight is $338m
  - kryptiskt 12y ago
    I assumed a $1 ticket in the example. The point is that even if the expected value is high, buying a ticket means that you are likely overbetting by several orders of magnitude.
    - jrs235 12y ago
      Yes. And even if you get to pot odds or better after taxes and decide to spend $20 (10 tickets), $200 (100 tix), or even $2000 (1000 tix) because you're at pot odds... 1 in 17.5 mil, 1 in 1.75 mil, even 1 in 175,000 are still very long odds. So, you can't win and dream if you don't play but if you play buy just one ticket. Buy it more for the fantasy you get to play in your dreams at night in your head, because that's most likely the greatest payout you'll get. $1 or $2 for a bottled drink or for some sweet dreams... Your choice, both are okay choices in my mind. Edit: typos.
- 12y ago
geoelectric 12y ago
Buying one ticket is a much bigger benefit over buying none than buying two is over buying one. Buying one ticket does seem reasonable to me (even with excellent math skills). Buying two is just silly.
chrisbennet 12y ago
We all know that there are negatives to winning the lottery or getting rich. One big drawback would be never being able to make new ("poor") friends without knowing if they were true friends or only friends because of your wealth. I can certainly see "rolling the dice" on a life changing outcome if you had nothing to lose because you were miserable. I think it make less sense if you are happy. Am I the only one who is so happy that I wouldn't take a chance on wrecking my life?

13 points by khc 12y ago

"It’s actually more complicated than that, because that calculation doesn’t account for the fact that there could be multiple jackpot winners who must split the pot." In other articles, it's been said that when the jackpot is high, the expected value actually goes down due to the increased chances of multiple winners.

zorrb 12y ago

This article is trash. First he makes a dumb argument that comes down to, what's $2 in exchange for the warm fuzzies of imagining where you'll move with that money. And then goes on to explain why now's the best time to waste your money if you like wasting your money because of the ridiculously obvious point that the jackpot is larger now. This is abysmal garbage and the author should feel bad and so should everyone who upvoted this. I rarely ever get mad but the lottery is one of my biggest pet peeves, and this brings no insight or elaboration on the issue besides, "gee wouldn't it be great to instantly have millions of dollars."

jmiwhite 12y ago
There are a number of things you can spend a small amount of money on with ultimately nothing to show for it but some brief enjoyment. It seems the author is encouraging his (non-addict, non-destitute) audience to reframe their thinking about what the lottery provides as entertainment value rather than simply being 'a tax on people who are bad at math' - even if you don't ultimately play, you don't have to view those who do in a negative light. That's certainly how I used to feel, but once I started thinking of it as a lark rather than a blight, it just didn't seem like that big of a deal.
themartorana 12y ago
Hasn't it been shown time and again that the act of thinking positively about your future often carries over in to your real life, making you happier in the present? Besides, I could drop $100 on Blackjack in AC once a year or $2 every time the jackpot climbs above $500m. My (minuscule) appetite for gambling is satisfied in both situations, and I save $98/year :)

Chinjut 12y ago

I hate the argument that, on the grounds that the aggregate money spent on lottery tickets is typically larger than the aggregate money paid out on lottery tickets, purchasing a lottery ticket is inherently irrational. The same is true of insurance, yet few people consider the purchase of insurance to be intrinsically irrational by the same argument. People are free to have whatever preferences they want. Some people prefer a life with a slim possibility of a tremendous windfall (and but a negligible loss in the more likely alternative) to a life of certain continuation with the status quo grind. More power to them.

sopooneo 12y ago
There is a fundamental rationality to insurance that is not present with the lottery if you accept the marginal utility of money to an individual. Your top dollar is worth less to your than your bottom one. So it is worth sacrificing the first to safeguard the second.
dragonwriter 12y ago
> The same is true of insurance, yet few people consider the purchase of insurance to be intrinsically irrational by the same argument. The offsetting argument for insurance is that it provides risk management against unaffordable, catastrophic expenditures -- it is a trade-off of a certain expenses, against the risk of a much larger uncertain expense, with an expected net cost in financial terms, but that it is rational in some cases given the decreasing marginal utility of net income (which, conversely, means that there is an increasing marginal cost of high expenses.) Of course, the trade-off in the lottery is you are paying a certain, low cost for a chance at unlikely larger payoff -- this has not only a negative expected financial value, but -- given the declining marginal utility of income -- an even larger expected negative utility in most cases, considering utility of money on its own. Of course, it may be rational if the utility provided to a particular player by "playing the lottery" (the entertainment value, etc.) exceeds the expected net disutility associated with financial expectations.
- Chinjut 12y ago
  If some people do, in fact, prefer situations in which there is a slim chance of tremendous windfall and large chance of small loss to guaranteed status quo, who is the economist to tell them "No, no, this is incompatible with the theory of diminishing marginal vNM-utility. Your preferences are misguided!". Utility is just a construct for describing people's preferences; to turn around and demand that people's preferences ought change to match some textbook model of utility is to put the cart before the horse. People can reasonably have all kinds of different personal preferences, right? If your theory doesn't account for that, that may not be an example of muddled thinking on your subjects' part; it could just as well be a problem with your theory. I mean, what is actually factually misinformed about preferring the risk profile afforded by a lottery ticket to the alternative?

oaktowner 12y ago

The lottery is a tax on people with bad math skills.

Chinjut 12y ago
You don't have to have bad math skills to play the lottery. For example, I am a mathematician who has on occasion chosen to purchase lottery tickets. And I see nothing at all irrational about this.
- doorhammer 12y ago
  I used to buy one powerball ticket a week. About ten guys at work would pool together and buy ten tickets on the pretense of splitting it if we won. We saw it pretty much exactly the way the article described. There'd almost always be an hour or two talking about what would be an interesting use of that much money, or talking about how stupid we were for playing the lottery, and it'd come back up over the work day. We were paying for group amusement, and I still remember having a lot of fun with those conversations. I don't regret it any more than I regret spending money on a soda here or there during the same time period (long term health wise I regret the soda way more :) ).
- oaktowner 12y ago
  Oh, I'm not above buying the occasional ticket, either -- for that matter, I like playing Blackjack and view any losses incurred as entertainment. However, people at the lower end of the income spend a lot more of their money (proportionally) on lottery tickets. [1] And states are increasingly dependent on those revenues [2], which means in effect we've got a system where our schools become dependent on our lowest income population wasting money on what is essentially a pipe dream. Note: I'm not saying "we've got to stop lotteries!" As I said: I play myself. Just noting that we are funding our government on the backs of people who are making what is arguably a terrible investment. In other words: lotteries are a tax on people with bad math skills. [1] Lots of studies back that up; there's a pretty good list here: http://stoppredatorygambling.org/blog/category/research-center/lotteries-who-really-plays/ http://stoppredatorygambling.org/blog/category/research-cent... [2] http://taxfoundation.org/article/gambling-tax-policy-states-growing-reliance-lottery-tax-revenue http://taxfoundation.org/article/gambling-tax-policy-states-...

kryptiskt 12y ago

I don't think there's anything wrong with buying a lottery ticket if its cost is a trifle for you. Buying one when the expected value is positive is not a sound gamble however. Suppose there is a jackpot of $300M and you have a 1 in 150 million chance to win. It's obvious that you have an edge, so you calculate how large part of your bankroll you should bet with the Kelly criterion[1] and get: f=3.33e-9 Oh well, if you are a centimillionare you can buy a ticket and be rational. [1]http://en.wikipedia.org/wiki/Kelly_criterion http://en.wikipedia.org/wiki/Kelly_criterion

jrs235 12y ago
You need to factor in ticket price, odds of winning, cash payout, taxes. Powerball is $2 a ticket. The cash payout is around $338 million. The odds of winning with a ticket is about 1 in 175. Assume taxes will take half. You shouldn't buy a powerball ticket using reason unless the cash payout is at least $700 million. Problem then is so many people are playing there's likely more than one winning ticket which would mean the numbers don't work. Edit: the payout tonight is $338m
- kryptiskt 12y ago
  I assumed a $1 ticket in the example. The point is that even if the expected value is high, buying a ticket means that you are likely overbetting by several orders of magnitude.
  - jrs235 12y ago
    Yes. And even if you get to pot odds or better after taxes and decide to spend $20 (10 tickets), $200 (100 tix), or even $2000 (1000 tix) because you're at pot odds... 1 in 17.5 mil, 1 in 1.75 mil, even 1 in 175,000 are still very long odds. So, you can't win and dream if you don't play but if you play buy just one ticket. Buy it more for the fantasy you get to play in your dreams at night in your head, because that's most likely the greatest payout you'll get. $1 or $2 for a bottled drink or for some sweet dreams... Your choice, both are okay choices in my mind. Edit: typos.
12y ago

geoelectric 12y ago

Buying one ticket is a much bigger benefit over buying none than buying two is over buying one. Buying one ticket does seem reasonable to me (even with excellent math skills). Buying two is just silly.

chrisbennet 12y ago

We all know that there are negatives to winning the lottery or getting rich. One big drawback would be never being able to make new ("poor") friends without knowing if they were true friends or only friends because of your wealth. I can certainly see "rolling the dice" on a life changing outcome if you had nothing to lose because you were miserable. I think it make less sense if you are happy. Am I the only one who is so happy that I wouldn't take a chance on wrecking my life?