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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That is exactly the excuse the .gov used when the Mob ran it; that it was a crooked 'game' extracting money from those who could least afford it on the miniscule, infinitely marginal possibility of winning. The 'lottery' is EXACTLY what they used to call 'the numbers racket'.
Funny how things change when the criminals actually get to run things...
And those are the odds assuming that the whole thing isn't rigged to begin with like the stock market lottery.
I love the look on this woman's face when the number shows up on the TV screen before the ball comes out.
https://www.youtube.com/watch?v=go4I6Qua14M
Slow day in the news?
Need...., moar...., clicks.
It is a simple framwork.
A loss so small it is meaningless and won't change your life, versus a win that definitely would.
Hence, on a psy level it is nothing but upside, so long as the bet size is small.
Pffftt..., whatever. When I win I'm putting it all in stawks.
When I win, I'm hiring Agent 47.
Standard Disclaimer: I'm making a list, checking it twice, going to whack those that pissed me off for a now affordable price.
It's a perfect metaphor for the modern economy: "Value" conjured out of thin air, government with its hand in every part of it top to bottom, and insanely high taxes making a good deal into a bad one.
You forgot to highlight the Hope and Change....
What do you pay to see a movie? And the experience lasts, what, 3 hours max?
When I spend $2 on a ticket, I get at least three whole days of spending my imaginary fortune.
Both experiences are imaginary, both enjoyable, but the ticket costs a lot less. So movie-goers are the suckers!
Harmless. Spend those $ on something that makes you happy before someone just takes it.
In fact, we should appreciate those folks that dump $100+ a week on tickets. If they didn't, they'd have raised our involuntary taxes somewhere to make up the shortfall.
I am always surprised when I see the people that buy a string of tickets, go sit in their car in the parking lot, scratch them, go back in, rinse and repeat until their weekly discretionary spending is gone.
I'm surprised also. I only had to make that mistake once. At age 10.
Pretty fucking sad when all you have to do is watch Many lottery players all day. Pervert
I may well be a pervert but one thing that sticks out when watching serial lottery players, they are generally fugly. Not too many babes hanging around the local convenience store.
You have patient folks where you live. Here they don't even leave the counter, they just scratch them all off right there and hand 'em back...ask for more tickets, scratch them right there AGAIN...sometimes this goes on 3-4 times before they finally lose it all. They will NOT leave that counter with any winnings on their persons, come hell or high water.
My friend doesn't even do that. He scratches off the bar code only then scans it through the machine...and he NEVER takes any winnings.
I also help when buying booze. A bag of ganja not so much.
What bank or banks would you trust to put $600 Million dollars in if you won? FDIC insurance only covers $250,000 and SIPC $1,000,000 are there even 600 brokerage firms to split the money between?
Which ever one is currently run by Corzine. If you can't trust a former Senator and DNC bundler who can you trust?
A good memory and sarcasm are what make message boards entertaining. Bravo.
You always have the ever trustworthy (ahem) Private Equity firms!!!!!!!!
A little history: Back in the 1930s this game was run by the Mafia. It was called the "Numbers Racket". The FEDs put them in jail and took over the game, but it's EXACTLY the same; except you win less and the FEDs take part of it back each time. Therefore, the "Numbers Racket" was a much better opportunity than the LOTTO! Hummmm..... makes me think! lol I doubt they would appreciate any competition or a Free Market!
The favorite tool of Government is "the rake."
I build the issue around sensibility. I budget an annual amount for lottery tickets, $20.. I guess basically it's for the fun of it. When these big ones come along, I might buy one or two tickets. It's like that old WB cartoon with the dog and the bone "I can dream, can't I" (then he hits himself in the head with a mallet!) lol
When I win it, I'm buying gold bars and soldering them together for furniture in my basement.
I don't care about the cars (already have a nice one of those), mansions (already have big/nice enough house) or trips (been from moscow to hawaii & plenty inbetween). no, fellow zh-ers, I buy my tickets for the fantasy of standing at that press conference podium & saying: "this is kind of embarassing... I really didn't do anything to deserve all this money - I feel like I should at least get fired from being ceo of hp and/or sell a few billion of worthless securities to teacher's pension funds first..." _OR_ if someone asked what I'm going to buy first: "well, this is WAY beyond sports car, mansion or exotic vacation money! this is 'buy a law' money! I was thinking of something like making it illegal to sell fried chicken without mashed potatoes. nothing 'evil' or flagrantry corrupt like tpp, dmca or monsanto protection - just something funny & benign to say you did it and know you've truly arrived..."
"Arrived" where? At TARGET and you´re the sign?
Guys spend money on blowjobs. A fleeting pleasure. I bought the long term blow job package (married). It would of made more economic sense to keep buying bj's.
You got that right! Married man here....I havnt had a good 5c blowjob since Truman was in office!
It's been said many times - the most expensive thing in the world is free pussy.
Blowjobs while married- from your wife? My wife told me blowjobs were to get me to marry her, after that, zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz.
I bought a hundred dollars of power ball random picks today. I am going to win. I can see the money in my bank already. In fact I believe I have won already.
Schroedinger's Lottery Ticket.
Can be thought of as both the winning and losing ticket until the drawing.
I have already won. Why is anyone else bothering to buy tickets? In my mind I already see $500 million in my bank account. In fact, I've already started writing checks. Who can recommend a good steak house in Houston for the celebration dinner? Nevermind....I think Aberdeen might be cheaper as most of the haters on this board couldn't afford the air fare. For my supporters and believers I will be flying you to Aberdeen first class, British Airways. The haters, we will send you happy meals. Supporters, please send me your seat preferences - aisle or window.
Not only is it exciting, hugely distracting and obscenely profitable, it´s another great way to take the average Ameridumb´s last hard earned wooden nickles AND further consolidate massive wealth into the hands of morons!
The pot would be 3 billion if gubbermint didn't run it.
"Powerball tickets since its inception in April 1992 come to roughly $55.8 billion (through January 9, 2016). Since that time, they have paid jackpot winners a combined $16.5 billion; non-jackpot, tertiary winners have won a combined total of around $11.8 billion."
So $28.3B out of $55.8B, but that's for annuity, not cash which would be $17.5B, then Fed taxation at 25% leaves $13.1B, then State tax from 0% to 8.82%, so leaving $11.9B to $13.1B.
Worst case each $2 ticket is worth $0.42 cash (best case $0.47 cash), the rest is gobbled up by the Gambling Syndicate and the Government Taxation Syndicate.
Society should redistribute wealth, not funnel it to the few.
If I win I will hire the best Lobbiest to Lobby Congress to make lottery winnings tax exempt retroactive to Jan 1, 2016 and then I will file for a $500 million refund.
With the win, I get to go to Davos next year.
If the winner was smart, he/she would "at the podeum" say they were buying COMEX gold or silver futures and were taking delivery...........that would spice it up a bit.
If I win with the one ticket I bought, that is EXACTLY what will happen...I will go public, so everyone knows who I am, and while I have the media attention I'll buy a ridiculous amount, and demand delivery...and be REAL loud about it..."What's taking so long, huh? Whaddya mean, I gotta WAIT? Where's my fucking GOLD/SILVER? DON'T YOU HAVE IT? How could you sell me something you don't even fucking HAVE!? Isn't that FRAUD!?"
Just my own little monkey-wrench to toss into the mix.
That would be reverse Gordon Brown action. They would want to buy first, take delivery, and THEN announce that they are going to buy. That would be fun.
You could buy a ticket, never check the numbers, and stash it in a drawer. Then you can spend the rest of your life fantasizing.
But there is no harm in buying a ticket or two. The danger is when you become one of those who drop 50-100 dollars at a time, and do this weekly.
But, it's the same with anything else...some people can enjoy a few beers, others just can't put it down. For the first ones, it enhances their lives. For the others, it destroys them.
Gambling is a terrible addiction for many. If you spend $2 to buy one ticket; great. Anything beyond that is an addiction.
What is sad is how much the states and feds take from the winnings; they treat it as ordinary income and not a capital gain.
It is worth $2 so that if you win you can stand up and say what you really think about something.
So, your saying there is a chance?
-dumb and dumber
If I win I'm dedicating my life to getting Steven Avery out of prison and making sure those corrupt cops take his place.
Don't forget that the figure advertised is only if you take the 30 year annuity option. At which case, you are taxed at ~39% Federally, + Local Taxes, and then 30 years of inflation. I typically use a conservative average inflation as being ~-25% real wealth per decade. They never seem to mention that one.
Take 39.6% off the top of 1.5 BILLION- wait the cash value is only 930 Million WTF!
OK, take 39.6% off 930 Mil leaves you ONLY $561 odd million- hardly worth the $2 gamble it at that point is it?