Is the Mega Millions lottery approaching +EV?

[UATrewqaz]

http://www.cnn.com/2007/US/03/06/meg....ap/index.html

Ok so the odds of winning the big jackpot (currently 370 million) are ~ 1 : 176 million.

In a world of no taxes/penalties, that would mean that the jackpot would need to be 176 million dollars to be 0 EV
(I am ignoring all cases of winning lesser prizes)

But of course there are taxes, which on such a large amount is roughly 50%, meaning the prize pool would need to be twice that

176 x 2 = ~ 350 mil

Thus it would seem even with 50% taxes this is still possibly +EV, especially when you consider you can of course win prizes less than big jackpot.

Of course I haven't accounted for the "lump sum distribution" factor.

But as far as lotteries go, this one looks to be pretty good.

[RedRum]

Also you have to figure in the probability splitting the jackpot. That's as awarded to a single winner. Theoretically you could buy 176 million individual tix and win the jackpot, and one/more of each of the sub prizes - however if there's another jackpot ticket out there somewhere you're splitting the pot. At which point you might break even, after 20 years of payouts, pretax.

[UATrewqaz]

Yes that is one thing I forgot. Since you can split the big prize that knocks some off the EV.

Of course you could get around this by selected 6 very unpopular numbers.

You could pick 51,52,53,54,55,56 or something like that. Not too many people would play that combo because "that would never happen"

I had a stat's professor in college advise if you were going to play the lottery make sure all your numbers are > 31, since so many people play bdays.

[RedRum]

If your stats prof was from GaTech I probably had the same class. He also noted it was +ev to play 1 ticket once the lottery broke the jackpot vs odds barrier - or in this case 176M.

Prof Lacey circa 1998 for me.

[Orlando Salazar]

Given today's interest rates, an assuming 25% tax (gambling winnings), the Megamillions is +EV at >268m.

[Orlando Salazar]

Also, + or - EV is irrelevant as the marginal utility of money approaches 0 at those prizes for most peopl.

[DWarrior]

[ QUOTE ]
Given today's interest rates, an assuming 25% tax (gambling winnings), the Megamillions is +EV at >268m.

[/ QUOTE ]

Not sure if you counted this in "today's interest rates" part, but also take into account that your winnings will be paid out over many years, so you have to factor in PV of the money you'll be receiving 30 years from now (or however long it takes to get paid).

Also, your hourly rate for a slightly +EV gamble will probably be in the pennies.

[Orlando Salazar]

Interest rates only matter if u are adjusting for time value of $. So yes, I accounted for it. Also, you can sell your annuity, FYI.

[Lottery Larry]

[ QUOTE ]
Interest rates only matter if u are adjusting for time value of $. So yes, I accounted for it. Also, you can sell your annuity, FYI.

[/ QUOTE ]

Not for $370M, you couldn't.

[Lottery Larry]

When one is talking about hundreds of millions of dollars for the cost of a few dollars, plus/minus EV isn't really an important consideration, is it?

This was discussed before in Other Gambling or somewhere. In that one, there was a link to an article stating that the breakeven EV was around 530M (factoring in taxes, possibility of splitting a winner, etc).

At any number, who really cares about EV at this point? Seriously- ask Big Steve about -EV lottery choices. :P