Stories
Slash Boxes
Comments

SoylentNews is people

posted by janrinok on Thursday February 12 2015, @11:58PM   Printer-friendly
from the if-it-feels-good... dept.

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."

 
This discussion has been archived. No new comments can be posted.
Display Options Threshold/Breakthrough Mark All as Read Mark All as Unread
The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
  • (Score: 1, Informative) by Anonymous Coward on Friday February 13 2015, @04:59AM

    by Anonymous Coward on Friday February 13 2015, @04:59AM (#144490)

    I happened to be reading a few days ago about Massachusetts' Cash WinFall game, where special rules actually made the lottery an objectively good investment. When the jackpot passed $2 million and nobody won outright, it would get redistributed to lower tiers. As such, payouts during a so-called "roll-down" would be about $1.15 for every dollar 'invested', plus free plays.

    http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf [mass.gov]

    It's a government report, but it's well-written. What ended up happening with the game is that smart people assembled betting pools, and the pools had to compete with each other. It's rather fascinating reading.

    Starting Score:    0  points
    Moderation   +1  
       Informative=1, Total=1
    Extra 'Informative' Modifier   0  

    Total Score:   1  
  • (Score: 1) by Beryllium Sphere (r) on Friday February 13 2015, @07:35AM

    by Beryllium Sphere (r) (5062) on Friday February 13 2015, @07:35AM (#144514)

    One is that when the prize is distributed over time, it's the net present value and not the headline amount that should be used to calculate expectation value.

    The other is that the prize is taxable income.

    • (Score: 2) by maxwell demon on Friday February 13 2015, @07:53AM

      by maxwell demon (1608) Subscriber Badge on Friday February 13 2015, @07:53AM (#144519) Journal

      The other is that the prize is taxable income.

      That's interesting. In Germany, one of the attractions of the lottery is that the win is tax-free (of course, in the end it isn't because the lottery itself is taxed, and quite heavily so; it's just that you don't see the taxes).

      --
      The Tao of math: The numbers you can count are not the real numbers.
      • (Score: 2, Insightful) by monster on Friday February 13 2015, @04:19PM

        by monster (1260) on Friday February 13 2015, @04:19PM (#144646) Journal

        That's the other illogical, funny part of the lottery: When people fantasize about so much money they would get (like, 100$ million) and discover how much would they have to pay in taxes (like, 40$ million), they get all incensed about how much taxes they would have to pay instead of keeping their fantasies with the real value of the prize (60$ million after taxes).

        • (Score: 2) by Joe Desertrat on Friday February 13 2015, @08:02PM

          by Joe Desertrat (2454) on Friday February 13 2015, @08:02PM (#144724)

          That's the other illogical, funny part of the lottery: When people fantasize about so much money they would get (like, 100$ million) and discover how much would they have to pay in taxes (like, 40$ million), they get all incensed about how much taxes they would have to pay instead of keeping their fantasies with the real value of the prize (60$ million after taxes).

          I'm a millionaire! Suddenly I have an opinion on the capital gains tax.

          • (Score: 1) by monster on Monday February 16 2015, @07:32AM

            by monster (1260) on Monday February 16 2015, @07:32AM (#145532) Journal

            I'm daydreaming about becoming a millionaire! Suddenly I have an opinion on the capital gains tax.

            FTFY