The Real Value Of A Powerball Ticket
Submitted by Matt McCaffrey via The Mises Institute,
Alex Tabarrok has a fun post calculating the monetary value of a Powerball ticket. He estimates that, as of the most recent drawing, each $2 ticket carries an expected monetary value of roughly $2.73. Superficially then, it’s worthwhile to buy one. However, Tabarrok also points out this is only true for a simple expected value calculation; after accounting for taxes and the possibility of a shared prize, a ticket’s monetary value is actually substantially lower (around $.75), making it a poor investment.
So why do people buy them? Are consumers hapless rubes throwing away their hard-earned money in exchange for nothing? Not necessarily.
The reason is simple: there’s much more to valuation and choice than expected monetary value. In fact, I suspect almost no one buys a ticket with any such calculation in mind. Rather than a cold estimate of the probability of future returns, the Powerball actually illustrates the subjective theory of value.
There are many ways for people find value in the Powerball beyond its expected monetary payoffs. Tabarrok observes, for example, that people find pleasure in anticipating the drawing. Such excitement is actually a major attraction of games of chance, where players have no control over the outcome.
In fact, I doubt most people playing the Powerball seriously believe they’ll win. Instead, people treat a ticket as the price of daydreaming about what they’d do with an enormous pile of cash. You can’t win without playing, so people pay a small amount as a way to justify spending their scarce time imagining their own Scrooge McDuck scenarios. For these people, the benefit of the ticket is greater than its cost.
These are just two reasons people might find value in lottery tickets, but there are countless others. Incidentally, value subjectivity doesn’t imply anything about whether the values people actually hold are morally acceptable or even economically sensible; just because our values are subjective, doesn’t mean they’re above criticism. But it does mean they’re about more than a simple expected monetary return.
My point is that although it may be convenient to reduce value to a simple, objective measure, doing so can never capture the complexity of what, how, and why people value the things they do.
By the way, I don’t have a problem with the idea of calculating expected value, as it’s a useful way of thinking about how to place present monetary value on a contingent event. I do, however, take issue with the idea that expected value calculus is the way for an economist to think about these problems. Focusing too much on objective calculations of worth drains the richness from economics and helps turn it into a mechanical exercise inapplicable to actual human behavior.
If anything, the economic way of thinking should stress the diversity and complexity of human values. Economists would be better off taking a humble approach, acknowledging that we can’t always fit human decisions into neat little boxes for economists to analyze, much less to build policy proposals on.
Public policy is actually one important reason these seemingly simple examples matter quite a bit. It’s a short few steps, for example, from defining value as the expected monetary return of a ticket, to claiming that buying a ticket is irrational, and finally, to insisting consumers not be given a choice to buy one at all. (As a side note, this isn’t an endorsement of public lotteries.) Although it might seem odd, this kind of argument is increasingly common among behavioral economists. Human errors and biases are open doors waiting for paternalism to rush through. Subjectivity is a way to slam them shut.
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And there you have it. Cheap entertainment.
If I win, my goat gets a goat-hooker. ;-)
Looney
It's huge circle jerk and the cost of admission is $2.
At best you could become a billionaire, at worst, you get a little jitt on you.
You guys don't see the big picture. An ETF based on lotto revenues is the way to go! Oh wait, we already have municipal bonds ... never mind ...
I wont play because if I win I will end up like the Tony Montana meme circulating the internet:
Juwanna build a snowmang?
And since I am such an upstanding citizen, that cannot be allowed to happen.
pods
I hate to be the jerk to point this out, but if you spend 1 minute of your day analyzing the value of spending $2 on a lottery ticket for over a billion dollar prize, you lost money.
I have to admit... I am one of the fools who bought a ticket... $10 worth. I know, I could have bought a half-ounce of silver with it, but this greedy little devil popped up on my shoulder and started poking me in the neck. What could I do?
ITs a Tax on Poverty! Only the poor pay this particular tax, that we call 'lottery tickets'.
And this is for Pods:
"Feelz good, mang!"
http://img.memecdn.com/cocain-dog_c_4609325.jpg
"You can’t win without playing, so people pay a small amount as a way to justify spending their scarce time imagining their own Scrooge McDuck scenarios. For these people, the benefit of the ticket is greater than its cost."
Exactly. And if you spend some time thinking about what you would DO if you win (as opposed to what you would BUY if you win), it can be truly beneficial. The trick is then to try, after ripping up your losing lottery ticket, to figure out how you can do those things without the extra few hundred million. That's definitely worth $2.
Ah geez. Take the fun out of life, why don't you?
I ride my bike to work when weather permits. For 30 minutes, I day dream a bit. Winning the lottery is one of them. It's pleasant, and it's harmless.
And it's the one tax, for it is a tax, that I'm happy to pay. What other taxes give me a chance to win some money (I have won small prizes), and indulge in some fantasies at the same time?
My powerball ticket is a potential black swan for the silver market. :-)
The poor are using their earned income credit, which like all dotgov concepts is an oxymoron. So you and I actually paid for their ticket. Wanna go after a share of the winnings?
Maybe the underwater shale oil E&P companies should invest their available debt-service dollars on the PowerBall. Might just jump their credit ratings.
Not Me! I won't buy a single ticket ... until the payoff hit's a Trillion.
I think any poker player would tell you is actually a smart bet. You risk 3 bucks for a shot at 1 billion? Crazy pot odds there.
I love being a jerk.
I'm going to buy a senator and make him a president
Of course you meant FED Chairman.
http://thesaker.is/china-rising-radio-sinolands-jeff-j-brown-on-press-tv...
mebbe dat be d'Debbie Wassahmun Schultz?
Cheaper than a movie ticket.
There are millions of people whose retirement planning consists of buying lottery tickets. This sort of 'planning' distracts them from making real plans. Same for millions who could improve their lives if they mapped out a plan and followed it up. But find it easier to buy lottery tickets and dream.
What about all the lives that never got off the ground because of lottery tickets?
Looks like this Moses guy was also paid "by the word".
I can tell the whole story with this: "BUYING A LOTTERY TICKET IS LICENSE TO DAYDREAM FOR THE LITTLE PEOPLE. IT'S A SELF-FUNDED CIRCUS."
The smart & diligent, and the cunning & ruthless sociopaths have also figured out how to amass wealth, but with fantastically better odds.
F-everyone. I'm going to buy an island and start my own kingdom.
sounds like your average retail trader.
Gambling was invented by people who are good at basic arithmetic as a way to extract lots of money from people who are poor at basic arithmetic.
Powerball is small change, the insurance industry is a much bigger suffocative animal preying on the average citizen.
Powerball wouldn't change me.
My name, phone number and address........................
pods
no but everyone you know would change...and that is what would destroy you
It would really fuck you up if that kind of coin was dropped in your lap.
I doubt I could do it to be honest.
Every person you ever knew would call. That would suck.
Just not for me.
pods
Just don't let Sean Penn interview you, and you'll be ok...
den fuck me runnin'...
I go to parties sometimes until four
It's hard to leave when you can't find the door
It's tough to handle this fortune and fame
Everybody's so different I haven't changed
Read more: Joe Walsh - Life's Been Good Lyrics | MetroLyrics
(emphasis added)
The $2 ticket is a symbol of a escape from serfdom. It's like Willy Wonka and the Golden Ticket to the Chocolate Factory. But except for unlimited chocolate, you get unlimited freedom because that is how one achieves "freedom" in today's neoliberal world: its not about the strength of rights, but the size of the check one writes.
We essentially ripped up the Magna Carta in exchange for a scratch ticket.
Title insurance being among the most severely predatory.
Screw math! With most things in Life, its all about timing! I got this shit figured out...I'm a buy a lotto ticket right before the the drawing, so that way, my ticket is at the top of the barrel! How easy is this shit to figure out?
dude, shut up! you're giving away the secret!
i agree, except that its not gambling its a lottery.... Go check
Powerball is a scam like everything else.
They wont even let you dream.
If you win that shit 70% of it disappears before it ever gets in your hands.
The record powerball correlates with the death of the society, people are hopeless and dream of hope so they throw their money away on this stupid " game " , some say the Lottery is a " tax on people that can't do math " , I say its where all the hope ends up when everyone is desperate and they see the lottery/powerball as the only way to escape the debt enslavement they have fallen into.
The lottery- it's what the proles looked forward to.
the kid who wrung up an $8,800 Xbox bill on his dad's CC could have wasted it all on Powerball instead
analysts work ferociously figuring out how to take money away from those who have no defenses
online gaming, online fantasy, gift cards that carry monthly administration fees, PayDay loansharking, lotteries, schemes devised by the Ruling Elite to rob you of whatever they can get
"If you win that shit 70% of it disappears before it ever gets in your hands."
my calculation below shows from 76.5% to 79% disappears (difference being State taxes)
so that 70% disappearing seems a fair assessement from multiple sources
If you want to throw money away just bet on horses for 63p you could place a lucky 63 on 6 races for the chance of winning way over 100,000 and you only need one horse to win to get any return. You also get a full days entertainment watching the races.
You buy it because it is a small investment for the most enormous payoff of your life. You buy it so you can have the universal conversation, "If I won the lottery, I would...". You buy it for the same reason you put five bucks on number 7 on the roulette wheel. It is fun.
You do NOT buy them with your 401k because you understand the difference in investing and gambling and you have some rational appraisal of the odds and risk.
It's not complicated and you are not better for buying one or morally superior for not buying one. It is your thing or it is not.
The more I look at the universally accepted habit of "investing" (especially with regards to markets) the more I see it as gambling and I start wishing I took that market money and played Baccarat instead to be honest.
Market payout sucks, by the time you earn something the money you earned is worth less than what you put in anyway.
Yep...just entertainment. Gambling isn't a problem, unless it is.
If you are obsessing about it, spending the grocery money, etc. you might have a problem.
If you like to go in on the office football pot, pick up a lotto ticket now and then, or go to Vegas on vacation with a set amount to blow, no problem.
unlike your 401(k) it's not completely guaranteed to be stolen by the government before you get to spend it
Unfortunately those who buy the most tickets are those who can least afford it. It absolutely amazes me when I go into the corner store and see people spending $20 $50 $100 worth of tickets and tell their children to put down that chocolate bar. Up here in Canada we call it a tax on the stupid. Sad really.
sad here too. i see the 300 pound mom with shoeless kids buying 12 pack of beer, box of cigarettes, and a few lottery tickets. I guess they accept EBT cards for lotto