Powerball: Stupid Tax?

[Japher]

My dad says it's "Stupid Tax" to play the lottery because the odds are so bad. I tell him that the odds are infinitly worse if you don't play at all.

In fact, the odds are better that you will die on the way to the store to buy the ticket then to actually win.

The odds are 1 in 195 million. They say you are 251 times more likely to be struck by lightning!

Their are lies, damn lies, and statistics I guess. Since the odds of someone being struck by lightning within a given week are actually probably worse, since they are using the odds of ever being struck by lightning. Also, the fact that odds are bad doesn't mean that it doesn't happen often.

Someone will win the lottery - FACT!
If you don't buy a ticket it won't be you - FACT!
I can afford to buy a $10 ticket without being called stupid - DEBATABLE!
The odds of winning the lottery on Saturday might actually be better then getting struck by lighting on Saturday - FACT-ish!

Anyway, if I win $550 million I will probably start posting here more. So you all would be the real winners.

[Guynemer]

Is it a stupid tax?

Depends on three factors: what is the jackpot (after taxes); what are the odds of winning the jackpot; how much money does it cost to play.

If it truly is 1 in 195 million to win, and $10 to pay, and assume that 50% of winnings to straight to Uncle Sam, it is a stupid tax for any jackpot under $4 billion.

[MRT144]

Also, people don't buy lottery tickets because they think they'll win all the time. Sometimes its fun to buy them because of the what if, and it's a more tangible what if when you put even a single solitary dollar on it than none at all.

[snoopy369]

Lottery as a way to make money (ie, gambling) = stupid tax.
Lottery as fun = ok, fine.

The problem is not the people who put $2 once a month or whatever; that's perfectly reasonable as long as you get entertainment value from it.

The problem is people who buy a bunch of scratch off tickets or whatever regularly. Spend $50 a week on it. That's where it becomes a stupid tax rather than just entertainment.

The reason it's a "stupid tax" is that you have $2, and the expected value of a powerball ticket is ~$0.75 [depending on the jackpot]. (The jackpot itself is not the majority of the expected value for most values of the jackpot; most of the likelihood comes from the smaller prizes.)

The odds of winning $4 (double your money) for example is 1 in 35. The overall odds of winning _some_ prize are 1 in 31; the returns are:

$1MM: 1 in 5MM, so that contributes $0.20 EV
$10k: 1 in 650k, so 0.02 EV
$100: 1 in 19k and 1 in 12k, so combined that's less than 0.02 EV
$7: 1 in 360, 1 in 700; so combined .03 EV
$4: 1 in 110, 1 in 55, so combined .12 EV

Exclusive of the GP your EV is about .38 or so (rounding), half of which comes from the 1MM prize (which is really what you should be hoping for). The GP is 1:175MM, so for an average GP of 50MM, your EV is about 0.33 (bringing your combined value to $0.71 for that $2).

Note that you have the "Power Play" option; this is not a 'good idea' in the sense that it costs $1 and increases your EV by roughly doubling the smaller prizes, from 0.38 to 0.80 (the 10k goes up to 40k, adding another 4c), so it gives you another 0.42 EV for that 1.00. But it's a better idea than the initial $2 (42% EV as opposed to 36%). (I'd also note that the Grand Prize total value is generally irrelevant; any amount over ~$50MM is the same for most people [you can't exactly consume $50MM worth of things easily]. Considering its actual EV is pretty silly unless you're Warren Buffett and actually could do something useful with that money.)

Also, the $4B number is wrong; 1/175MM for $2 payin gives an EV of $2 at $350MM, meaning technically there are times where the GP makes it a "good bet". But the problem with those times is that there are a lot of plays when it hits 300-400MM and you're likely to be splitting the pot, so your EV isn't really what it seems. Given that it seems the average $300MM+ pot is split around 2 ways, your EV should be calculated on half or so of the pot's value at that point.

[MRT144]

As a gambling addict, I don't think stupidity should be conflated with addiction.

[Japher]

My mom goes to the indian casinos every weekend, and my dad thinks that is different then playing the lotto. I don't get it.

[Guynemer]

Depends on what you are playing.

If you are an above-average poker player, you can turn a steady profit at the casino. I've been doing so for that past several months.

[loinburger]

The only truly stupid people who are playing the lottery are the ones who pool their money with friends or co-workers - they're just setting themselves up to get murdered.

"What a coincidence that everybody who was in the lottery pool with me accidentally died of decapitation - I guess the lottery winnings are all mine now."

I've read enough Hardy Boys and Nancy Drew mysteries to know that this happens approximately 99% of the time.

[Guynemer]

That post just gave me an idea.

How about we have an Apolyton Tontine?

[The Mad Monk]

My mom goes to the indian casinos every weekend, and my dad thinks that is different then playing the lotto. I don't get it.

How many indians did she win?

[snoopy369]

That post just gave me an idea.

How about we have an Apolyton Tontine?

Can we combine it with the Dead Pool?

[rah]

My mom goes to the indian casinos every weekend, and my dad thinks that is different then playing the lotto. I don't get it.

The payback % at most casino games is higher than lottery games.

Playing a few dollars when the jackpot gets high doesn't bother me since most are smart enough to know they're playing for that "what if" entertainment.
But someone that spends 50 or more a week on it, would be better off going to a casino and betting it at the crap table.

[Guynemer]

Can we combine it with the Dead Pool?

Sold.

[Ben Kenobi]

I'd be all for it provided it was Jag managing it.

[giblets]

There's no practical difference between winning $10 million and winning $100 million. People play the lottery because knowing that there's a chance their lives will change for the better makes them feel good. I guess it's a tax on people who have an otherwise bleak future.