At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
This week's fight at the Hemingways has been about whether to buy a Megamillions ticket. My view is that Lotto is a tax on people who don't understand statistics. His view is, and I quote, "Come on! It's over $500 million! I had an uncle who won the lottery once."
It will not surprise you that my background is in math and his is in wishful thinking. (I kid because I love. And also because he is literally right about everything ... except this.)
I come from a long line of fighting about gambling. See, my dad is a pastor and really sees no moral value in gambling. My mom views it like others might view any other entertainment expense. You might spend $100 a year on going to movies. When she's in Vegas, she plays a roll of quarters on the slots and stops when she runs out of money or time.
But I'm curious if we reach a point where the risk of reward makes the purchase of a ticket more reasonable. Scientific American says "No Matter How Huge, Mega Millions Jackpot Will Always Be a Bad Bet."
The prize is so high it exceeds the number of possible number combinations on a ticket, which is about 176 million. (In other words, the chance that any particular ticket is a winner is about 176 million to one.) The math seems to imply that a $1 ticket has an expected value of $500 million divided by 176 million, or nearly $3. Yet a closer look at the math reveals that the Mega Millions jackpot is a bad bet no matter how large the prize. ...
Certainly, the threat of having to split is there, but does that really make it a bad bet—especially when the jackpot is so very high? According to the mathematicians, yes. As the number of tickets sold goes up, the chance that more than one person will share in the jackpot does as well, according to a well-known mathematical function called a binomial distribution. When Emory University mathematicians Skip Garibaldi and Aaron Abrams worked through the equations, they found that lotteries are generally a terrible bet—Mega Millions and Powerball particularly so. (I encourage you to take a look at their paper “Finding good bets in the lottery, and why you shouldn’t take them,” which was published in the American Mathematical Monthly in 2010.)
Even in the case of the current drawing, which offers a jackpot so large that Garibaldi and Abrams show how it should only occur on average every 22 years, the number of tickets that go out is correspondingly large. “I ran the numbers last night,” Garibaldi told me over the phone. “You can tell by the amount they estimate the jackpot to be what they estimate the ticket sales to be.” Based on the current jackpot, an estimated 380 million tickets have been sold this week. The estimated return on an investment of this week’s Mega Millions drawing? Negative 19 percent, per his calculations.
I wonder if there's a simply way to figure out when the estimated return on investment is not negative. Either way, considering the economic situation of our family and our country, I think our "win the lotto" retirement plan might be the best bet we have.
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Comments:
Dec '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
my wife told me to buy 20 tries today.
a 389 Million cash payout would do what make me more wealthy than romney, and if not what I am out what 2 fast food lunches with my wife. Oh no.
Feb '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Your question reminds me of this story: http://articles.boston.com/2011-07-31/news/29836200_1_lottery-tickets-claim-prizes-massachusetts-state-lottery
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Clearly, my wife the economist doesn't understand the concept of "opportunity cost." I kid, I kid...
Dec '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Do you realize that this idea was articulated by Dogbert years ago? This doesn't mean that it is wrong. Douglas Adams has told many truths.
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
I'm with Mark Hemingway on buyting some tix. It's because I do love gambling that I know the lottery is a bad bet.
However, for half a billion dollars, I'll pony up a couple of bucks so I can spend today daydreaming.
Gambling is best when it is fun - and this kind of daydreaming is fun!
Dec '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Scott Adams.
Douglas Adams also speaks much truth though.
Dec '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Tommy De Seno: I'm with Mark Hemingway on buyting some tix. It's because I do love gambling that I know the lottery is a bad bet.
However, for half a billion dollars, I'll pony up a couple of bucks so I can spend today daydreaming.
Gambling is best when it is fun - and this kind of daydreaming is fun! · 3 minutes ago
My inner project manager has a plan.
Dec '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Tommy De Seno: I'm with Mark Hemingway on buyting some tix. It's because I do love gambling that I know the lottery is a bad bet.
However, for half a billion dollars, I'll pony up a couple of bucks so I can spend today daydreaming.
Gambling is best when it is fun - and this kind of daydreaming is fun! · 1 minute ago
Yep, I real good with math, but I'm going to invest a few bucks today.
Jun '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
It's a terrible bet...unless you win
Mar '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
I have never bought a lottery ticket. Too much resentment at the duplicity of the state: Gambling is bad unless we sponsor it.
However, I have thought that if I were, I would buy when it was lower because the odds of winning would be better. Whether the jackpot is 60 million or 600 million, the change in my life would be almost equally radical. So, play when the odds are best.
Dec '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Guruforhire
Scott Adams.
Douglas Adams also speaks much truth though. · 5 minutes ago
Oops. I have books by both within five feet and I still screwed up.
Feb '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Remember, while on average your purchase is futile there are occasions where you win against all odds. Think of the three statisticians who went hunting; they saw a bird and the first shot 3 ft above its head, the second shot 3 ft below its head, and the third said "you got it!"
Dec '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
kgrant67: I have never bought a lottery ticket. Too much resentment at the duplicity of the state: Gambling is bad unless we sponsor it.
However, I have thought that if I were, I would buy when it was lower because the odds of winning would be better. Whether the jackpot is 60 million or 600 million, the change in my life would be almost equally radical. So, play when the odds are best. · 2 minutes ago
Huh?
Nov '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
My father-in-law plays the lottery all the time, and about 4-5 times a year he wins in excess of $100. Whenever he does, he gives the money to my wife. I'd say that's good bet, from where I'm sitting...
Mar '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Agreed. One doesn't drop $1 to win $540 million. One drops the buck for the idea of going all Johnny Paycheck next Monday.
Edited on March 30, 2012 at 6:27pmMar '12
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
I went on the pool with my coworkers, and the last time I bought a ticket was on my 18th birthday, because I could.
Sep '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
I plan on spending two bucks today with full knowledge of an expected return of roughly $0.
Jun '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
I've never bought a lottery ticket though I once lived in Colorado. Now that I'm back in Utah, it's unlikely I'll ever do so (no inclination and no lottery).
I do have a close friend who, whenever the Colorado lottery payoff gets above a certain level, buys one ticket. I would give him a bad time. His response: "Just buying a little entertainment and a whiff of hope."
Aug '10
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
Speaking of economics, shouldn't an economical study (as opposed to a merely statistical study) of lotteries assign some positive value to the amusement that ticket purchasers get from buying their ticket?
Tommy knows about this:
Tommy De Seno:
Gambling is best when it is fun - and this kind of daydreaming is fun!
Personally, I'm not amused enough by lotteries to buy tickets, just as I'm not amused enough by big-screen movies to buy tickets to the movie theater. But that doesn't mean that I think that people who like these things are "irrational".
Edited on March 30, 2012 at 8:26pmMay '11
Re: At $540 Million, Is Lotto Still A Tax On People Who Don't Get Math?
As somebody who will gamble on about anything, I thank the great pit boss in the sky the state I live in (Utah) doesn't have a lottery. I don't understand people not being more outraged at state sponsered gambling. The libraterian in me doesn't want the government to tell me what to do but I also don't want the government to promote dumb behavior for its' own financial gain.