- #1

Arqane

- 53

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- TL;DR Summary
- Though buying a lottery ticket will almost always be a loss on average, the possible percentage return dwarfs any other type of investment. So when is the risk really worth it?

So let's say we have a lottery out there which costs $2 to buy a ticket, and currently has a $1B prize. Let's say the average return is $1.80 on that $2 (90%). Objectively, for every dollar spent, investing long-term in the stock market is mathematically better. But that doesn't take into account the maximum possible returns over a certain amount of time. A big lottery win absolutely dwarfs the amount of the greatest stock market return, so it ends up being high risk, but extremely high reward. The risk someone takes with an investment usually depends on a few circumstances, and often includes subjectivity. If you had $10,000 to invest, put only $9,998 into the stock market and bought a lottery ticket with the extra $2, the math would say that you're likely to lose $0.40 from my lottery example compared to investing the entire $10,000. With the possibility of winning $1B, the 5,500% return for Bitcoin one year looks tiny. So I guess you could do a probability graph, but what variables would be the best to include? And although I think it would still stay subjective even with the probabilities, could you come up with a reasonable rule of thumb to tell people where the probabilities cross (like saying that you should buy one lottery ticket for about every $10,000 invested in the market)? I find it an interesting exercise between the usual objectivity of math and dealing with subjective feelings of risk.