Lotteries

[sdill]

What are your thoughts on playing state lotteries? If we apply the principles of pot odds, if a jackpot was $1,000,000 and the odds of winning were 1,000,000 to 1. Then it is breakeven to play that lottery, in the very very very long run obviously. Since I've learned about pot odds in poker, i've been applying this concept to the lottery. For example, I live in Indiana and our state lottery is up to $41,000,000 and the odds of winning our ~12,500,000 to 1 (per the state lottery website). I see this as a good bet since I'm getting over 3 to 1 for my money, in the very very very long run. Anyway, we only live once, so if I was to win it would be awesome, but if I don't win, I'm only out that $5 or $10. Thoughts?

[WhiteKnight]

Rule number one of economics: "There is no such thing as a free lunch."

Money doesn't appear out of thin air. In the lottery it comes the players. The house will not pay out more than they receive (seriously, you're dealing with the government... wouldn't cutting taxes or something be a higher priority on the budget?). THINK about it... I almost feel stupider having to seriously answer this.

I'm not sure how to reconcile the odds they state with the size of the jackpot (I don't have enough information), but I can state with 99.9% certainty that playing state lotteries is not +EV.

[jesse8888]

So what happens is that on occasion nobody will hit the jackpot. The lottery takes that money and rolls it over into the next jackpot. Its as if 20 people were at a hold-em table and they all had to ante, but then 10 of them had their cards taken away. Then you walked over and the dealer asked if you wanted two off the top to play the hand. It is very possible for the state lottery to be +EV, so long as nobody hits a couple of weeks in a row.

The rubs are two-fold:

1. You must consider the odds of splitting the jackpot. If the kitty gets humongous, more people buy tickets and you're more likely to split.

2. Uncle Sam has his way with lottery winners. I have never hit the lottery so I don't know what we're talking about here, but I don't think 50% is unreasonable.

[WhiteWolf]

Point 1: You don't know how likely it is you are going to end up splitting the prize with someone who has the same numbers as you do. This is even more likely when the prize pool is extremely large and everyone is queuing up with you to get their piece.

Point 2: The prize amount is paid out over several years (typically 20 or more). This greatly reduces the value of the payout (google "time value of money"). How much would you pay me now if I offered you a guaranteed $1000 dollars in 20 years? I'm guessing it's a lot less than $1000. Factor that into your equations, and things look a lot less lucrative.

[pzhon]

[ QUOTE ]
Point 1: You don't know how likely it is you are going to end up splitting the prize with someone who has the same numbers as you do.

[/ QUOTE ]
You can make it less likely by avoiding popular numbers (such as birthdays) and geometric patterns.

If you assume that all tickets are random, you can compute your fair share of the jackpot, which is the probability that someone wins (roughly 1-e^-(# tickets/# combinations)) times the jackpot divided by the number of combinations. For example, if 10 million tickets are sold with 10 million combinations, and a $15 million jackpot, your expected share of the nominal jackpot is about (1-1/e) * $1.50 ~ $0.95 per ticket.

[sdill]

I understand the money comes from the other players, but not me. It's the same as money coming from other poker players going into the pot. Same Principle! If you feel more stupid (not stupider!) then don't answer the question. I view the government as the rake. Even considering present value issues, the cash payout net of taxes will be >= the odds against winning. Thus my odds are greater than 1-1. The whole point of the discussion was to get peoples views on playing the lottery. Often times you have nits who say the lottery is a waste of money etc. etc. And other times people play the lottery every week.

[sdill]

1. I agree that more people will buy tickets once the jackpot gets really big

2. Uncle sam would take 35% (top tax bracket) and it is tax free in the state.

Still I could live with a net amount of about $13,000,000 if I take the cash option. This assumes that the PV of $40MM is $20MM which is really conservative I think and a tax rate of 35%. ($20MM * (1-.35)).

[1aguilas]

lottery is -EV

[wtfsvi]

Yeah. Sounds like your lottery is +EV right now. Doesn't mean it's worth bothering with, though.

[jman3232]

It is going to pretty much always goign to be -EV, but to the amount of only a couple pennies. Its not like hes playing to get rich, its more for the excitement.