Is Playing the Lottery Worth the Risk?

[hamster143]

1% of your after-tax income spent on lottery tickets? Is that a joke?

If you add money to a typical 401k at $1000 a year and earn 8% return, at the end of 40 years, you'll have $260,000 with which to retire (a typical 401k is more like 5-10% - and includes free money from your company). If you do the same with lottery tickets, you'll likely have about $28,000. Why on Earth would you think the small odds of doing a lot better is worth the risk of being broke vs the reward of a comfortable lifestyle in retirement?

If you make $100,000/year after tax and you max out your contributions, and you can really get 8%, you'll have $4 million in your 401k by the time you retire. You can put an additional $1000 there to be at $4.26m safely, or you can put that $1000 for a small chance to have $20 ... $50 million (with interest).

For most people, there's no difference between $4m and $4.26m, but there's substantial difference between $4m and $50m.

Now, the reality is that most people don't make $100,000/year after tax at the age of 25, nor do they put away 15% of their income for retirement, nor does the market provide 8% annual returns for everyone any more (on this day 10 years ago, Dow-Jones closed at 10733), and realistically an average person can expect to have $500k..$1m in savings by retirement, and this number could be boosted by 20-40k by foregoing the chance to retire on 50 million.

One interesting corollary is that the chance of winning the lottery is almost irrelevant! It only matters to the extent that there's no other safer way of turning 20-40k into 50 million. For example, roulette has better odds and higher expectation value per play, but the existence of a maximum bet (on high-stakes tables, often $10,000 or $20,000) can be demonstrated to result in an astronomically low probability of a large win. It would be interesting to do the numbers to estimate the chance of making a lot of money using a high-risk/high-reward trading strategy in the stock market.

 

[Danger]

I see a border-issue at hand in the adoption process.

Despite our common interests, you cannot come here, and frankly, I cannot go to Canada anymore. This ain't the EU.

We are just going to have to circumvent those obstacles, ol' buddy. I most assuredly want to meet you in person sometime before I bite the biscuit.

 

[alt]

No, I don't think so. Once one adopt the attitude of using probabilities for your advantage and then starts benefiting from it, why would one occasionally abandon the philosophy that has brought on the riches?

Most very rich people I know aren't using probability. They use gut feeling, speculation, risk taking, aggression .. but they're not beancounters - though I'm sure there are also rich and poor beancounters.

But to answer your question;

I have a philosophy (using your term) of high personal safety, but I drive a car - fast sometimes. I even went up in a hot air balloon last year (WOW !) I ride a motorbike for fun, too.

I have a philosophy of healthy, clean living, but I drink a couple of beers a day. Heck, I even smoke a few cigs a day. I even venture out into a highly polluted city occasionally.

I think riches are meant to be enjoyed, else, what's the point ? And to enjoy them, you MUST abandon the philosophy that bought them to you - but only by small degrees.

I don't have any dislike of money - in fact, I like money a lot !

 

[robheus]

Yes, probability gives you laughable chances at winning. However, what about all the stories where one person plays for the first time and hits a goldmine? Is it worth it to play occasionally? Often? Very seldom? Never? Thoughts anyone?

The chances of winning the lottery are always against you. If not, such a lottery would have nett-loss instead of gain. The lottery always has the better chance (well not chance obviously, but about sure) to win.

So instead of playing a lottery, you should instead consider organizing a lottery.

 

[russ_watters]

If you make $100,000/year after tax and you max out your contributions, and you can really get 8%, you'll have $4 million in your 401k by the time you retire. You can put an additional $1000 there to be at $4.26m safely, or you can put that $1000 for a small chance to have $20 ... $50 million (with interest).

Yes...

For most people, there's no difference between $4m and $4.26m, but there's substantial difference between $4m and $50m.

There will be a difference between $4 and $4.26 million if they get to be 95 and run out of money!

The problem here is:

One interesting corollary is that the chance of winning the lottery is almost irrelevant!

That's absurd. The fact that the odds of winning are rediculously low is the entire reason the strategy is flawed. You're only considering the reward and ignoring the risk.

It only matters to the extent that there's no other safer way of turning 20-40k into 50 million. For example, roulette has better odds and higher expectation value per play, but the existence of a maximum bet (on high-stakes tables, often $10,000 or $20,000) can be demonstrated to result in an astronomically low probability of a large win.

Wrong. All it takes to turn $20,000 into $20 million is two wins in a row! And the odds of that are 1:1369. By your previous estimation, that's a pretty good deal, so clearly whenever a person saves up an extra $20k, they should go to their nearest casino and bet all of it on Roulette.

Absurd.

 

[russ_watters]

The chances of winning the lottery are always against you. If not, such a lottery would have nett-loss instead of gain. The lottery always has the better chance (well not chance obviously, but about sure) to win.

The one possible exception is getting into a building-jackpot lottery after the first few rounds, when the jackpot exceeds the odds of winning. For someone rich enough, they could buy every ticket and turn a profit on winning!

 

[xxChrisxx]

You are all taking this way too seriously. The answer is very very simple, to play to make money long term is obv -EV. You play for the thrill of being able to win an amount of money that you would otherwise never ever have.

I only ever play the UK lottery if there is a roll over. Yes EV wise I am spending about 75pish every time I play, but still "it could be me that one time" and I could land £XX million. I also play totally random numbers (I select then, not lucky dip).

People fall into the trap of playing the same numbers, meaning that mentally they have to play every week. As Sod's law states that you can gaurantee 100% the week you don't play your numbers, they will come up.

Also RE: Roulette or Craps or any even bet in a casino. Both of you are making valid points on either side. The fact is the Lottery is terrible edge/low risk. Most people won't really miss 7 attemps on the lottery a week (£7/$7) if they lose. Roulette has a much better odds in making a huge amount of money, but is more high risk.

(I used 7 attempts to makes the maths easy). Most people WOULD miss $/£365 in one go, eapecially letting it ride on 1 number on Roulette 3 times even though the odds of a big win are much better.

In reality you probably are better playing to lottery as it's lower risk than playing roulette, and EV and probability of winning is totally irrelevant for this case. Both are -EV and no one really (who plays the lottery formoney) has the bankroll to ride the variance roller coaster of either. IE, either way you need a hell of a lot of luck. The fact you need magnitudes more luck for the lottery is irreleventPlay for the thrill/laugh/whatever not the money.

 

[robheus]

Statistics shows that in some (many) cases the chance of winning a big prize in the lottery is less then the chance you get killed in a car accident.

What a thrill...

 

[xxChrisxx]

ARGH! I'm starting to take this seriously... I should take my own advice and go for a Malibu.

EDIT: Being killed isn't quite as juicy an outcome as winning millions. It's not the probability of the win, it's the dream of the win (everyone knows the long odds but plays anyway).

Russian Roulette has great odds, doubt you'd be thrilled by playing it though.

 

[Danger]

Russian Roulette has great odds, doubt you'd be thrilled by playing it though.

I'm mightily tempted to mention Ukrainian roulette, wherein they remove one cartridge, but that would probably offend someone.

 

[elfboy]

lottery is a tax on stupid people lol

 

[Office_Shredder]

lottery is a tax on stupid people lol

Your fresh insight into the situation has clearly brought closure to the thread

 

[xxChrisxx]

Your fresh insight into the situation has clearly brought closure to the thread

I lol'd IRL!

I had that thought when I read it "welcome to the thread 100 posts ago"