Is the Lottery for fools?

[Kaylee]

I'm willing to pay the equivlent cost of a cup o' joe in the morning every week to gamble against astounding odds.

I think the lottery takes advantage of many people's ignorance. I doubt that many people truly understand the power of compound interest or know that if someone saves $5.00 a week over 48 years (65 years - 18 years) he could probably end up with about $135,000.00 at the end of it. And thats pretty close to a sure thing, no odds involved. See note*

As good skeptics I think it pays to pay attention to what wealthy institutions and people do, and not what they say (or advertise) ....

And BTW, I always wondered, how much does it cost to be allowed to sell lotto tickets and what's the cut? (Not that I would do that, or at least not that I would do that and not feel somewhat guilty and hypocritical about it ... )


*Note: This assumes he saves it in an account with 3% interest until he has a balance of a $1000.00 and then switches it to a combo of low fees index mutual funds that averages out at 8% interest most of the time. This also gives me a break for not setting up a very detailed spreadsheet that comounds interest daily -- just annually.

edited to fix typo

 

[ImaginalDisc]

I think the lottery takes advantage of many people's ignorance. I doubt that many people truly understand the power of compound interest or know that if someone saves $5.00 a week over 48 years (65 years - 18 years) he could probably end up with about $135,000.00 at the end of it. And thats pretty close to a sure thing, no odds involved. See note*

As good skeptics I think it pays to pay attention to what wealthy institutions and people do, and not what they say (or advertise) ....

And BTW, I always wondered, how much does it cost to be allowed to sell lotto tickets and what's the cut? (Not that I would do that, or at least not that I would do that and not feel somewhat guilty and hypocritical about it ... )


*Note: This assumes he saves it in an account with 3% interest until he has a balance of a $1000.00 and then switches it to a combo of low fees index mutual funds that averages out at 8% interest most of the time. This also gives me a break for not setting up a very detailed spreadsheet that comounds interest daily -- just annually.

edited to fix typo

How does this ammased wealth compare to a lifetime with a starting income at say, 25 of $30,000 and a rate of wage increase 3% ahead of inflation?

SPending $5 per week for 40 years costs about $12,000, saving it and investing wisely, as you suggest nets $135,000 but how does that compare to total income?

 

[Ladewig]

I've played the Lottery before, and many people I know and like play the Lottery.

But anyway, from a skeptical point of view, is the lottery idiotic? And especially the way people play it?

There are people who buy lottery tickets when the Jackpot is extremely high, but as far as I know the odds change accordingly. And the worst thing is people who actually spend five dollars or something instead of 1, as though you're not just throwing away more money?

And wha tkind of arguments do you prefer to use to discourage this? My favorite one is pointing out that, with a 200 million dollar Powerball jackpot, even if you bought TWO MILLION tickets and spent TWO MILLION DOLLARS, the chances are still 99% that you're going to lose.

Please be careful with your math statements. The odds in Powerball do not change from week to week; the chance of winning the jackpot is 1 in 146 million. Buying two million tickets will give you about a 1.4 percent chance of having the correct numbers whether the jackpot is 15 million dollars or 300 million dollars.

What changes from week to week as unwon jackpots roll over is the expected value of the game. The expected value winning the jackpot will, however, always be negative because (a) if players opt for the cash value option, then they will receive around 40% of the jackpots value and (b) the jackpot is split between all players with the winning numbers. Ignoring reason (b) means that the jackpot would have to grow to about 365 million dollars before the game switched from a negative expected value to a positive expected value.

Is lotto foolish. I think so. Especially considering all the other types of bets a person could make with that one dollar.

 

[Interesting Ian]

Yeah, with respect to the UK one it is since they implemented the lucky dip.

 

[Interesting Ian]

Playing the lottery is a classic woo activity.

As an investment, its lousy - the expected return is less than the amount invested.

That would depend. Without a lucky dip so people have to choose their own numbers, then the expected return might well exceed the amount invested. Of course you would need to play many millions of years.

 

[Kaylee]

How does this ammased wealth compare to a lifetime with a starting income at say, 25 of $30,000 and a rate of wage increase 3% ahead of inflation?

SPending $5 per week for 40 years costs about $12,000, saving it and investing wisely, as you suggest nets $135,000 but how does that compare to total income?

Its a lot less obviously. But I still think its a good idea to try to set aside some money, especially since in the USA Social Security might not be around in the future.

Mutual funds are a good idea because the odds are that the saver will be able to beat inflation that way. Its hard to predict what the inflation rate will be and its hard to predict what the rate of return from a pool of indexed stocks will be (esp. in any given year) but if someone gambles over a period of 40 or so years the odds are almost guaranteed that the indexed stock returns will beat inflation by a few points.

My point was not to be dismissive of how handling "small change" will impact the average person's life.

If a 22 year old can discipline herself to save $2,000 per year (about $38.50 per week) obviously she'll do better yet (say about $712K by 65) but saving $5 a week is still a better option for most people than buying lotto tickets.

That's all I'm saying. And of course I wish I had understood all that when I was in my early 20s.

 

[EGarrett]

Please be careful with your math statements. The odds in Powerball do not change from week to week; the chance of winning the jackpot is 1 in 146 million. Buying two million tickets will give you about a 1.4 percent chance of having the correct numbers whether the jackpot is 15 million dollars or 300 million dollars.

What changes from week to week as unwon jackpots roll over is the expected value of the game. The expected value winning the jackpot will, however, always be negative because (a) if players opt for the cash value option, then they will receive around 40% of the jackpots value and (b) the jackpot is split between all players with the winning numbers. Ignoring reason (b) means that the jackpot would have to grow to about 365 million dollars before the game switched from a negative expected value to a positive expected value.

Is lotto foolish. I think so. Especially considering all the other types of bets a person could make with that one dollar.

Pardon me. 98.6%...

 

[Ladewig]

Pardon me. 98.6%...

I wasn't quibbling with your statement that:

even if you bought TWO MILLION tickets and spent TWO MILLION DOLLARS, the chances are still 99% that you're going to lose.

I was quibbling with your statement that:

There are people who buy lottery tickets when the Jackpot is extremely high, but as far as I know the odds change accordingly.

The odds don't change.

 

[Roboramma]

I don't think it makes sense to say that because your average payout is less than the investment in the lottery, it is necessarily irrational.

There are plenty of situations in which it would be a good idea to gamble my small amount of money against horrible odds with a chance of a big payout, even if on average I would lose money.

Here's an extreme example. I owe $10,000 to someone that will have me killed if I don't pay up by friday. Clearly it makes more sense to try to gamble my $5 on the lottery than to put it into mutual funds.
This is an extreme example.

Here's another stupid example. Say I have only 1 penny. I can't really do anything with 1 cent. But if it could buy me a lottery ticket with a 1/100000 chance of winning $5, it might be worth it. I could go from having something that offers me nothing to having something.
Of course I could save that penny. That muddies up my point. But for the sake of this example, let's say that I only make enough money that I have 1 extra penny to spend 1/5years. By the end of my life I might be able to save 10 cents. Again, there's not much that can be bought for 10 cents. But right now I have a chance to turn that 1 cent into something of value. And if I lose it, I haven't really lost anything.

I know these are stupid examples, point is that having $1,000,000 isn't necessarily exactly 1 million times better than having $1.
And if your only chance of getting that $1 million is playing the lottery, then it might be the reasonable thing to do.

Mind you, I don't play the lottery. It seems like throwing money away, but I can imagine that there are situations where it is the reasonable thing to do. A simplistic calculation of the odds doens't necessarily refute that.

 

[RandFan]

A comedian, I don't remember who, said that "when you buy a lottery ticket you know what you'll be doing for the rest of the day."

If you spend $1. for a cause to fantasize for a day that is pretty cheap.

On the other hand if you have any illusions that you have any real possibility of winning then you are an idiot.

 

[valis]

Sorry but when you buy a lottery ticket you are not buying a chance to win at all. What people are buying is a chance to fantasise about what they would do with the money if they won.

If you don't buy a ticket then you can't sit around and play what if with your friends, family or even in your own head.

 

[Lothian]

The way a lottery works is that an amount is stripped from a pool of money for running costs and good causes and the rest is redistributed unevenly.

Insurance is exactly the same except the cause is not so good.

I presume those above criticising the lottery also eschew (voluntary) insurance.

 

[Mojo]

Yeah, with respect to the UK one it is since they implemented the lucky dip.

Why do you think that the lucky dip makes any difference? The chances of six (or however many) randomly chosen numbers coming up is just the same as the chance of six (or however many) deliberately chosen numbers. It's random.

Of course, if you manage to chose numbers nobody else has, you don't have to split the jackpot. But the odds of somebody else getting the same numbers are probably not significantly different whether the numbers are randomly or deliberately chosen. There is the possibility that peope are using birthdays, and so will be chosing numbers no higher than 31, but on the other hand some people deliberately chose higher numbers to try and take this into account. You're just going to be trying to second-guess everyone else who buys a ticket.

 

[Mojo]

That would depend. Without a lucky dip so people have to choose their own numbers, then the expected return might well exceed the amount invested. Of course you would need to play many millions of years.

Nope. Because the lottery pays out less money in prizes than it takes in ticket sales, the longer you play the less likely it is that you will get back more than you put in. If you get lucky early on, you might make a profit at that point, but the longer you play the more likely it is that you will make a loss.

Remember also that you would need to continue investing for all those many millions of years.

 

[C S Costa]

I figure, if I have the extra money to gamble, I'm already a winner.

My wife, on the other hand, is on a first name basis at the Quiki-mart lottery counter.

 

[Interesting Ian]

Why do you think that the lucky dip makes any difference? The chances of six (or however many) randomly chosen numbers coming up is just the same as the chance of six (or however many) deliberately chosen numbers. It's random.

Of course, if you manage to chose numbers nobody else has, you don't have to split the jackpot. But the odds of somebody else getting the same numbers are probably not significantly different whether the numbers are randomly or deliberately chosen. There is the possibility that peope are using birthdays, and so will be chosing numbers no higher than 31, but on the other hand some people deliberately chose higher numbers to try and take this into account. You're just going to be trying to second-guess everyone else who buys a ticket.

People do not choose randomly. Picking 6 numbers such as for example 12, 13, 14, 15, 17, 36 is more likely to be a unique set of numbers (given no lucky dip) than something like 7, 15, 24, 32, 39, 46.

But it's not only the jackpot which is relevant here. It also applies for the lesser prizes where 4 or 5 balls (and, in the UK, 5 balls plus bonus) are chosen. For example prior to the "lucky dip", one week getting 4 balls only paid out £15. Other weeks getting 4 balls paid out over £200.

So it's true that you cannot increase your chances of winning. But what you can do is to choose numbers to maximise the payment when you do win.

 

[EGarrett]

Sorry but when you buy a lottery ticket you are not buying a chance to win at all. What people are buying is a chance to fantasise about what they would do with the money if they won.

If you don't buy a ticket then you can't sit around and play what if with your friends, family or even in your own head.

To me, fantasizing about winning means that somewhere in your head you do think you might win.

 

[Interesting Ian]

Nope. Because the lottery pays out less money in prizes than it takes in ticket sales, the longer you play the less likely it is that you will get back more than you put in. If you get lucky early on, you might make a profit at that point, but the longer you play the more likely it is that you will make a loss.

Remember also that you would need to continue investing for all those many millions of years.

No, that's like arguing that you cannot win on www.betfair.com because the owners take off 5% in commission off all winnings. All this implies is that the average punter loses (average as in mean). But in fact only 90% of punters lose in the long run. 10% of punters are up in the long run.

Before the lucky dip the diifference in getting a specific number of balls right could be absolutely huge. If I recall correctly one week for 5 balls and bonus it was only £7000 odd. Another week getting 5 balls and bonus was £2,000,000 (I would need to check that again though). But the point is the differences could be huge. People like to pick pretty patterns on their lottery tickets you see. So often they pick the same combinations of numbers. Since the prize money always remains approximately the same for a given specific number of balls correct, they get paid correspondingly less.

So they experience a good feeling from picking pretty patterns. But boy, do they pay for it!

The lucky dip I imagine vastly evens out the winnings.

 

[Almo]

It's a tax on the statistically impaired. The ultimate regressive tax. It's morally irreprehensible, in my opinion, for a government to run one. Especially since they have a monopoly on it, and can have really lousy payout rates with no fear of competition.

 

[Ed]

I look at the question differently e.g. do you get some value from your money? If for instance you enjoy the anticipation on a the draw night or it just adds a bit of spice into your life it is no more waste of money then any other entertainmentt.

Yes, whileing away hours on the internet and waiting for a powerball drawing.

Any more excitement and I'd vapor lock.