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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."

 
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  • (Score: 2) by tomtomtom on Friday February 13 2015, @10:03AM

    by tomtomtom (340) on Friday February 13 2015, @10:03AM (#144547)

    Another reason it can sometimes be rational to play lotteries where the top prizes are life-changing, and especially where they are expected to be only marginally loss-making for the average player, is the outcome in terms of utility [wikipedia.org]. The utility (to some people) of the life-changing 1 in 10 million jackpot may well be more than 10 million times the lost utility of the small cost (expected loss) of the ticket if you account for only the non-"life changing" prizes. Of course, this does not mean it is sensible to spend all of your money on lottery tickets, since the lost utility per dollar of spending all your money is also a multiple of that when considering he small cost of one ticket.

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