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Wednesday, November 28, 2012

Expected Value and the Futility of the Lottery

Stop wasting your money on lottery tickets. Don't even give me the "but it's fun to imagine what I could do with that money" excuse. There's a reason why economists and mathematicians call lotteries a stupidity tax. Because a rational individual would never play the lottery. In the long run, you are guaranteed to lose money.

Even CNN is reporting on the 500 million+ jackpot for Powerball and it's distressing to think that it got to such a huge amount because a bunch of stupid and poor (the two are not entirely synonymous) people paid for the hope of getting really, really, really, really ridiculously lucky.

Unless the state gaming commission is also terrible at math (there have been instances), lotteries are designed in a way so that every participant has negative expected value. For example, imagine a game in which you flip a fair coin and every time it landed heads, you gained a dollar, but every time it landed tails, you lose two dollars. If you kept playing the game, you would eventually bankrupt yourself.

Lotteries aren't designed to make people rich. They're designed to let morons fund state education programs. It's essentially a transfer payment from poor and stupid people to K12 and college students. The hope of winning it big is just absurd. Serial lottery ticket purchasers would be much better off stashing it in a no-load mutual fund, or even just buying a chocolate bar instead of a ticket. At least a chocolate bar has real, practical utility.

The other argument for buying lottery tickets is that it goes to a good cause (education). If that were the case, just cut a check to the state government.

This is why I'm a libertarian and I believe in small government. Because the government (more specifically, the state governments) is directly manipulating the public into buying tickets with clever phrases like "today could be the day" and other forms of TV, billboard, and radio advertising.

That is the government directly acting against its constituents' best interests. If a company wants to do it, sure. But the government sure as hell shouldn't.

6 comments:

  1. People who buy lottery tickets aren't just gambling, they're purchasing hope, which has positive utility.

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    1. Is this serious? It's false hope. The system is literally designed to make you lose money. And false hope is worse than no hope.

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  2. But the money ultimately helps fund government programs. So is it so bad that people spend a buck or two to to dream about the remote chance of winning, and the only real down side is that some of that money will go to fund schools?

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    1. Well, I'm not saying that the lottery is some kind of national tragedy. But the expected value is negative and dreaming about the remote chance of winning might be pleasant but it still deprives people of money that could be better spent elsewhere.

      If you want to support a school, donate to it. Buying lottery tickets is nothing more than supporting a state run racket.

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  3. I agree that it is a waste of money, but so are so many things that we spend money on. Movies, expensive clothes, candy, soda, cigarettes, alcohol, etc, etc. The list is miles long of things that are wastes of money. Dropping a few bucks on a lottery ticket is no different than buying some doughnuts, seeing Twilight in the theater, buying the ad free version of an iphone game....

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  4. This may help people understand the futility of playing lotto http://justwebware.com/powerball/powerball.html

    ReplyDelete