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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) by GeorgeScuttles on Friday February 13 2015, @03:12PM
To parallel the lottery's big win, consider a man in prison for 65 years, given an opportunity for a 1 in 282 million chance to get out tomorrow. All that man has to do to be eligible is to skip eating one meal. The worse the conditions of the prison, the more likely the man will take the offer. The better the conditions of the prison, the less likely. In fact, if prison is better than the outside world, a rational agent would never take the offer.
Using this, it's no wonder that the poor and those in horrible jobs buy more lottery tickets than the rich (who depending upon richness may not even buy them at all).