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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: 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.