Is Playing the Lottery Worth the Risk?

[Danger]

Law of averages, Leroy.
The universe is an evil place, within which we are lucky enough to exist.

(I'll maybe elaborate upon that further if/when I reintroduce myself to sobriety. For now, blissfully pissed is working quite comfortably. )

 

[BoomBoom]

And we now witness the birth of a new addict.

Well, I wouldn't consider $3/week to be a huge gambling problem. Lord knows, I waste much more $$ on far more frivolous things. To me, for that small price of admission, a slim chance is better than none...and besides, the money goes to a good cause IMO.

 

[BobG]

What?? This is not true.

To deorbit a satellite, all you have to do is make a very small adjustment to its orbit; the atmo will do the rest.

What you're describing is how much energy it would take to bring the entire satellite plus all its discarded bits back to the launchpad with a final velocity of zero (gentle, powered touchdown, not even using parachutes) - which is an outrageous idea.

omg, I hope you don't teach science.

The atmosphere is really, really thin where geosynchronous satellites orbit. Geosynchronous satellites are about 36,000 km above the Earth. Atmospheric density tables go up to about 1500 km. After that, the atmosphere is so thin, it's not worth calculating atmospheric drag.

But, true, once the satellite gets down somewhere around the altitude of the space station, atmospheric drag is going to be the device sucking energy out of the orbit instead of thrusters (but it's still the same amount of energy regardless what the source is).

(Usually, the question is asked in reference to why we push geosynchronous satellites higher once we're done with them instead of deorbiting them.)

 

[Danger]

Well, I wouldn't consider $3/week to be a huge gambling problem. Lord knows, I waste much more $$ on far more frivolous things. To me, for that small price of admission, a slim chance is better than none...and besides, the money goes to a good cause IMO.

It's not the amount that he's spending that worries me; it's why he's spending it. He makes it sound as if it's an obligation rather than a recreation.
I won't fault anyone for gambling any more than I would accept someone trying to fault me for my drinking and smoking. All of the aforementioned are out of our conscious control.

 

[BobG]

When you buy insurance, you reduce risk that exists. When you gamble, you create risk where there was none.

What risk? The dollars gone. It's not at risk any more. Same as the money you spend on insurance is gone as soon as you mail it into the insurance company. You won't have a chance of losing more dollars just because you already spent one dollar.

In one instance, you spent money to reduce risk. In the other, you spent money to create a chance of benefit.

I would still revise my statement about insurance being a bad deal mathematically. Insurance companies actually pay out more money in claims than they take in from premiums. The profit comes from the sporadic nature of paying out a large amount of claims. Money taken in each month is invested and it's the increase in value of the investments that provides the profit.

 

[hamster143]

As lisab said, its a tax on people who are bad at math and statistics.

The monetary value of playing a game of chance is easy to calculate, for each instance of playing the game you multiply the amount you could win by the probability of winning and the amount you could lose by the probability of losing.
<math skipped> There is no financial reason to play such a game, so you shouldn't think to play it for the chance of winning rather than the fun of playing.

No offense, but this is what happens when you couple excessive knowledge of mathematics with insufficient understanding of the real world: you're able to make incorrect conclusions from correct data. It is people like these who made the Great Financial Meltdown of 2008 possible.

Yes, the expectation value of payout of one lottery ticket (less the price of ticket) is typically negative.

HOWEVER, the expectation value is deeply irrelevant, unless you intend to invest the amount of money that is at least remotely close to inverse chance of winning a jackpot.

Odds of winning California Super Lotto are 1 in 41,416,353. One ticket is $1. Therefore, if you were to spend, say, $400,000,000 on tickets over your lifetime, you'd be able to use the expectation value to predict your expected winnings (-0.71 * 400,000,000) and, with some more advanced probability theory, to put some sigmas around that.

On the other hand, if you're only going to buy 1000 tickets over your lifetime, the expectation value does not tell you squat.

Instead, you should estimate your expected lifetime earnings, estimate relative desirability of different end-of-life financial outcomes, and then use probability theory to ask yourself "what strategy gives me the best expectation of outcome?"

For most people, the optimal strategy is to spend as much money on the lottery as they can without otherwise constraining themselves financially (maybe, 1% of after-tax earnings?), because that maximizes their chances of retiring rich (say, with $10,000,000 or more by the age of 65).

 

[turbo]

My wife and I spend 2-4 bucks a week on high-odds lottery tickets. No biggie. We don't have any loans (haven't for decades) and don't owe anybody anything. We get lottery tickets just for the entertainment. If we hit a good prize, OK. If we hit the Superball, we'll set up trusts for the grand-nieces and grand-nephews so they can all go to college, and we'll probably set up a trust to benefit low-income children and their families for a LONG time. We would still live here and garden. We'd probably like to buy a camp on a remote trout pond to the north of here, but what else do we need? We've already got what we need, and a camp out in the boonies would only be a "want" not a need.

 

[Danger]

My wife and I spend 2-4 bucks a week on high-odds lottery tickets. No biggie. We don't have any loans (haven't for decades) and don't owe anybody anything. We get lottery tickets just for the entertainment. If we hit a good prize, OK. If we hit the Superball, we'll set up trusts for the grand-nieces and grand-nephews so they can all go to college, and we'll probably set up a trust to benefit low-income children and their families for a LONG time. We would still live here and garden. We'd probably like to buy a camp on a remote trout pond to the north of here, but what else do we need? We've already got what we need, and a camp out in the boonies would only be a "want" not a need.

I am herewith offering myself up for adoption. I am, after all, an orphan... and a mere child by your standards.

 

[turbo]

I am herewith offering myself up for adoption. I am, after all, an orphan... and a mere child by your standards.

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.

 

[russ_watters]

Instead, you should estimate your expected lifetime earnings, estimate relative desirability of different end-of-life financial outcomes, and then use probability theory to ask yourself "what strategy gives me the best expectation of outcome?"

For most people, the optimal strategy is to spend as much money on the lottery as they can without otherwise constraining themselves financially (maybe, 1% of after-tax earnings?), because that maximizes their chances of retiring rich (say, with $10,000,000 or more by the age of 65).

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, with still a rediculously small chance of having a whole lot more (around 1:1000). 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?

 

[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"