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Neil Irwin writes at the NYT that financially literate people like to complain that buying lottery tickets is among the silliest decisions a person could make but there are a couple of dimensions that these tut-tutted warnings miss, perhaps fueled by a class divide between those who commonly buy lottery tickets and those who choose to throw away money on other things like expensive wine or mansions. According to Irwin, as long as you think about the purchase of lottery tickets the right way — purely a consumption good, not an investment — it can be a completely rational decision. "Fantasizing about what you would do if you suddenly encountered great wealth is fun, and it is more fun if there some chance, however minuscule, that it could happen," says Irwin. "The $2 price for a ticket is a relatively small one to pay for the enjoyment of thinking through how you might organize your life differently if you had all those millions."
Right now the Multi-State Lottery Association estimates the chances of winning the grand prize at about 1 in 175 million, and the cash value of the prize at $337.8 million. The simplest math points to that $2 ticket having an expected value of about $1.93 so while you are still throwing away money when buying a lottery ticket, you are throwing away less in strictly economic terms when you buy into an unusually large Powerball jackpot. "I am the type of financial decision-maker who tracks bond and currency markets and builds elaborate spreadsheets to simulate outcomes of various retirement savings strategies," says Irwin. "I can easily afford to spend a few dollars on a Powerball ticket. Time to head to the convenience store and do just that."
(Score: 0) by Anonymous Coward on Friday February 13 2015, @12:04AM
It's essentially a tax. Perhaps, socially, we subconsciously think of the loss as a tax that just goes to the general good ;) It's an interesting way to get people to voluntarily pay taxes.
(Score: 5, Insightful) by bob_super on Friday February 13 2015, @01:22AM
It's more than just a tax, according to the people who built a massive city in the desert.
Whether it's an escape from reality, the need to see the other side of the ocean, or all these things that don't fit mathematical logic, humans have these "what if/why not me" cravings. Lotteries are a cheap legal way to open the pressure relief valve on reality and its unfairness.
As a side-effect, many people who believe they will eventually win the lottery are nice enough to view economic policy as if they were already rich.
TMYK: if you live in the US, the odds of the Megamillion are similar to the Powerball. Powerball costs twice as much ($2 vs $1). Considering that both grand prizes are instant-retirement events ($40M and up vs $12M and up), you've got to be amazingly greedy to pay twice as much for each chance.
(Score: 3, Interesting) by TheLink on Friday February 13 2015, @03:03AM
If you're some poor person stuck in some minimum wage job, your odds of ending up with > $100 million are about as close to zero if not closer. Now if you started your own business there's a higher chance of you becoming a millionaire or multimillionaire but the odds of getting >$100 million are still low plus the effort involved is much higher. There are also other risks involved- there are lots of people with failed businesses, not many sell books or give interviews on how they failed and failed again and still haven't succeeded[1].
There are people who won the "genetic lottery" and have the energy and endurance to work 2 or more jobs and NOT die/break (to build up capital etc), and have other things right, but for the rest - what really are their odds of going from burger flipper to having hundreds of millions?
So if you're poor and wanted to be merely normal "rich" don't bother with lottery tickets - maybe try to invest what little you earn. But if you want to be swimming in hundreds of millions of dollars within your lifetime, buying a powerball ticket is a rational decision (especially when the jackpot gets big).
[1] As for those "success" advice, I'm sure you've seen some that say "don't give up", whereas others that say "know when to cut your losses", some say "focus on one thing" others say "run multiple businesses, don't be a one legged stool". There are valid points behind the different ideas, but you have to figure out which are applicable for the scenarios you're in.
(Score: 3, Insightful) by linuxrocks123 on Friday February 13 2015, @07:21AM
If you are intelligent and born in a developed country, and even some developing countries, you have a good chance at a middle-class lifestyle if you do well in schools. Even in the US, where college is very expensive relative to many other places, there are scholarships, Pell Grants, and, in some states, programs such as HOPE [gacollege411.org], which, together, can make college a real possibility.
If, on the other hand, you are less intelligent, there are a variety of blue-collar jobs which pay quite a bit of money and do not require a college degree. These take some research to find, but are not a secret. [forbes.com] (Note: please do your own research before planning your life based on a single magazine article.)
Finally, if you think you need tens to hundreds of millions of dollars to be happy in life, you are likely incorrect, and will likely be unhappy even after winning the lottery. You probably should seek psychological counseling and determine what the real cause of your unhappiness is. There are many stories [forbes.com] about lottery winners who actually end up wishing -- in all seriousness -- that they hadn't won the lottery. The people who think they need millions of dollars to be happy are probably the same ones with so little emotional maturity that they let having a truckload of cash dropped in their laps ruin their lives.
They are probably also the same people who don't really understand odds well enough to realize that playing the lottery is not an "investment". They are probably the kind of people who let the temptation of the lottery lead to gambling addiction. They need help from the state, and, instead, the state takes advantage of their disorder. There are people right now taking out payday loans to buy lottery tickets. There is nothing rational about what they are doing.
If you want to be swimming in hundreds of millions of dollars within your lifetime, that's an okay fantasy to have sometimes. But it should remain a fantasy, and not a life goal, and indulging the fantasy by actually buying lottery tickets might be a sign that you need to take a serious look at your life and figure out what's making you prefer that fantasy to real life. At least, if I noticed myself doing something that irrational, I'd want to at least sit down and think about why.
(Score: 1, Insightful) by Anonymous Coward on Friday February 13 2015, @08:32AM
Real great insight and rational thinking there by you ;).
(Score: 0) by Anonymous Coward on Friday February 13 2015, @03:30PM
When that $2 is worth about 15 minutes of work time?
$2 can get you: 12 eggs, two loafs of bread, a box of cereal, 13 bananas, three cans of corn, or three pounds of potatoes. I am lucky enough to have done well enough in the genetic lottery for intelligence that I can realize this. I know others are not as fortunate and I feel bad for them.
(Score: 2) by Freeman on Friday February 13 2015, @05:14PM
If you catch a sale, you can get 6 pounds of Potatoes or more, but that's usually a seasonal thing.
Joshua 1:9 "Be strong and of a good courage; be not afraid, neither be thou dismayed: for the Lord thy God is with thee"
(Score: 1) by Anonymous Coward on Friday February 13 2015, @07:38PM
Also, discount vegetables and fruit that are about to expire. I didn't mention those or sales because the poor often do not reliably have the luxury of waiting to take advantage of those offers. Bus fares also add up if you try to get things at different stores.
(Score: 1) by calzone on Tuesday February 17 2015, @05:14AM
Where are you finding any loaf of bread for $2? Let alone 2 of them? Let alone bread actually worth eating that won't destroy your health?
Time to leave Soylent News [soylentnews.org]
(Score: 4, Touché) by c0lo on Friday February 13 2015, @09:01AM
Yea, yea... Look, I promise that's the first thing I'm gonna do after I win the lottery.
(large grin)
https://www.youtube.com/watch?v=aoFiw2jMy-0 https://soylentnews.org/~MichaelDavidCrawford
(Score: 0) by Anonymous Coward on Friday February 13 2015, @08:43PM
Bullshit, it can be a very successful investment strategy. [youtube.com]
(Score: 2) by TheLink on Saturday February 14 2015, @08:22AM
They are probably also the same people who don't really understand odds well enough to realize that playing the lottery is not an "investment".
Then there are a lot of other people don't realize that it actually becomes an investment when the jackpot goes past a certain amount, and the conditions and terms are favourable.
See: http://www.businessinsider.com/heres-when-math-says-you-should-start-to-care-about-powerball-2013-9?IR=T& [businessinsider.com]
Of course if more people realize this and start buying, the higher the jackpot will have to be.
See also:
http://www.independent.co.uk/news/how-to-make-a-killing-on-the-lottery-1322272.html [independent.co.uk]
http://www.nytimes.com/1992/02/25/us/group-invests-5-million-to-hedge-bets-in-lottery.html?pagewanted=all [nytimes.com]
http://www.forbes.com/sites/joshbarro/2012/03/30/can-you-ever-guarantee-a-mega-millions-win/ [forbes.com]
(Score: 3, Insightful) by arashi no garou on Friday February 13 2015, @02:24AM
Bullshit. A tax is compulsory, the lottery is not. If it were a tax, I would be forced to buy a ticket on a schedule set by the state, and if I didn't buy a ticket I would be subject to sanctions. The lottery, on the other hand, is a voluntary donation that provides funding above and beyond tax money to support (in my state at least) education and environmental efforts.
(Score: 2) by aristarchus on Friday February 13 2015, @07:39AM
Bullshit. A tax is compulsory, the lottery is not. If it were a tax, I would be forced to buy a ticket on a schedule set by the state, and if I didn't buy a ticket I would be subject to sanctions.
This is why you fail. It is a tax, a stupid tax. Sort of like a "sin tax" that is levied on things like alcohol. Don't want to pay the tax? Don't drink! Problem solved. Stupid tax, don't want to pay the tax? Don't buy lottery tickets! Problem solved, except that since you are stupid, you cannot help but buy the lottery ticket, you must buy the lottery ticket, because you are too stupid not to! Now isn't this great! We do not need any sanction, we just take advantage of stupid people, the ones really bad with math and particularly probability calculations, and they not only do not need the threat of sanctions, they flock to the scam and then vote for Republican policies of tax cuts for the wealthy because they are just waiting for their number to come up. Stupidity is coercion, of the most insidious kind.
One interesting aside to this, is the the lumpenproletariat tend to be in favor of what the 1% call "tort reform", limiting the damages that can be awarded to individual citizens who are victims of Corporate malfeasance. We could talk about "Hot Coffee", but that would only make the point. So when I come across one of these Fox News watching, Republican-voting Einsteins, and they start telling me how outrageous some court settlement was, I just say: "Good for them, that citizen just won the lottery! They are fixed for life!" And suddenly all resistant to the high-money settlements vanishes into a total lack of understanding of numbers, justice, or humanity.
(Score: 1, Flamebait) by hemocyanin on Friday February 13 2015, @09:36AM
Did you read the part where it's noted that the EV was $1.93 on a $2 ticket? Seriously, at a 7 cent loss I'd hardly call it a "stupid" tax -- that's just you being smug. I've had enough money fall out of my pockets without me noticing that at a 7c loss, I could buy loads and loads of tickets. Just dropping a quarter is almost 4 tickets. Hell, I've dropped dimes, _noticed_ that I dropped them, and didn't even bother to pick them up. Worse, I've spent many thousands of dollars on total crap in aggregate over my life -- you know, you buy something you think will good or cool and it breaks just after the warranty ends, or it never works at all and you totally forget to return it. Then of course there is the totally frivolous stuff I've bought -- my boat gets 1.75 mpg -- add that up at the $4.50/gal price over the last few years. Talk about burning money ... approx 90c per minute.
Secondly, a ticket is whole dollar, which in today's world just isn't much. The world isn't like Farmer Boy where Alonzo can buy a whole pig for 50c anymore. Even at $7.35/hr, a person is making over 12c per minute -- about 8 minutes to earn a dollar, 16 for two, and in my locale minimum wage is pushing $10/hr -- about $1 every 6 minutes. Most people probably have more than a buck (covered in sticky crap) under their car seats just from it slipping out of their pockets.
And yes, whenever these lotteries get over $300m, I'll buy a ticket if I remember to. That works out to two or three per year. I have a post-grad degree, qualify for mensa, make 6 figures, and even I enjoy the fantasies of what I'd do with the winnings. I totally expect not to win, but we're talking a few pennies here for some nice entertainment. Oh, and I'm so liberal I think Democrats would make Nixon blush.
I guess my point is that people get their joy in all kinds of different ways. Things I've bought, you'd think they were stupid. There are things you bought that I probably wouldn't take if I was paid to have them. And you know what? So what. Live and let live. Belittling people because they buy stuff you don't understand -- that's what's stupid here.
(Score: 2) by aristarchus on Friday February 13 2015, @09:59AM
Did you read the part where it's noted that the EV was $1.93 on a $2 ticket?
Ah! Fun with statistics! EV may be 1.93, but the AV is 0, as in total loss. Now if only the winners would share.
(Score: 3, Insightful) by mechanicjay on Friday February 13 2015, @07:01PM
I find the $200,000,000 jackpots to be extraordinarily cheap daydream fodder. More entertaining than the $40 bucks it costs to go to movies these days.
My VMS box beat up your Windows box.
(Score: 2) by arashi no garou on Friday February 13 2015, @12:48PM
So what I'm getting from your rambling, nearly incoherent comment is "Duh I say it's a tax so it's a tax and you're a doodoohead!"
Sorry bud, you're going to have to elaborate, and my that I mean leave the neocon conspiracy stuff behind and tell me again how I'll go to jail and pay fines for not buying that lottery ticket.
(Score: 2) by aristarchus on Friday February 13 2015, @06:53PM
OK, I will use smaller words to help you understand. You see, you don't have to buy lottery tickets. Why is that? Because you are smart enough to understand the odds, and if you do buy them, it is the mindless entertainment the FA says it is. My point is that if you were more stupid than you are, it might not be a choice, since you would not even be aware of what you really were doing. I have known people who's financial plan was "when I win the lottery". There are enough other comments making this point here already. Remember, it is not just about you.
(Score: 2) by arashi no garou on Friday February 13 2015, @07:29PM
You see, you don't have to buy lottery tickets.
Thank you, you just made my point. You don't have to buy tickets (it's not compulsory), therefore it's not a tax. So you agree with me.
(Score: 2) by aristarchus on Friday February 13 2015, @09:07PM
Your point is missing my point. It is not a tax on _you_, but it is a tax on stupid people. Lets say a tax on alcohol is not compulsory, you can always just not purchase alcohol. If you are an alcoholic, however, this is not an option, so the tax is compulsory. See the analogy? But lets not start blaming the victims of these selective taxes, we should criticize the nation that deploys them.
(Score: 2) by arashi no garou on Friday February 13 2015, @11:53PM
It's only a "tax" in your mind because you are calling it a tax. Just because you wish something to be true so you can prove a point, doesn't make it true. If you call up the state tax assessor's office to discuss the lottery tax, they will explain to you that no such thing exists, and possibly call your mental hospital and remind them of your phone call limit for the month.
Grab a dictionary or wikipedia and look up the definitions of "tax" and "lottery". Here, I'll save you the trouble, first hit on Google:
tax /taks/
noun
a compulsory contribution to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.
lot·ter·y /ˈlädərē/
noun
a means of raising money by selling numbered tickets and giving prizes to the holders of numbers drawn at random
If you don't like the lottery that's fine, don't play it, vote against it. But making up baseless facts to support a nonexistent argument is folly on your part. But hey, don't let me stop you making a fool of yourself.
(Score: 2) by aristarchus on Saturday February 14 2015, @12:15AM
But hey, don't let me stop you making a fool of yourself.
Thank you, your concern is warmly received!