The Lottery

[JaBlue]

The odds of hitting the lottery are 7 million to one right? So if they are offering a lotto ticket at 1$ and the winner recieves 100 million dollars (they've had this in the past), isn't it a +EV situation? If this is so, do any people actually play the lottery when it is so markedly +EV? Sklansky, etc.?

Just curious.

[tdp]

You are forgeting about the possibility of multiple tickets having the winning numbers,which happens often with large jackpots.Lottery is always -EV.

[Precision1C]

Beside the multiple winner issue the present value of the stated lottery is smaller than the gross value. Many lotteries have a twenty year payout so the present value of a 1 million dollar win would be
PV= 50,000 + 50,000/1.04 + 50,000/(1.04^2) + ..... +50,000(1.04^19) assuming about a 4% risk free interest rate. There is also a tax factor in that the small dollar values for buying the tickets make them not worth taking as deductions but the prize will be fully taxed.

[Irieguy]

Payouts like this have nothing to do with EV. It's just risk/reward.

Would you play lotto for free if you could? Sure, freeroll at 100 million, right? Is $1 that much different than free?

What if the jackpot was a Billiongajillionkazillion dollars? Would you buy a $1 ticket then?

The point is that it doesn't matter whether a 7 million to 1 shot that pays 100 million is +EV or not. It's a lousy dollar, so play if you want. On the other hand, if you decide not to play it doesn't matter either because your chance of winning is effectively zero.

The only mistake you can make with lotto is to buy so many tickets that the loss affects you in some way. Until then you are effectively taking a free shot at something that will never happen.

Irieguy

[elwoodblues]

[ QUOTE ]
Lottery is always -EV

[/ QUOTE ]
That's just not true. Winning the jackpot for the powerball lottery is approximately 120mil to 1. Once you factor in the various other ways to win smaller amounts of money, I would suspect that it is +Ev when the jackpot gets to the 100mil mark or so.

[rdu $teve]

I read the back of one lotterty ticket that said the odds were 400,000,000:1. I once saw a comparison between the odds of winning the lottery versus getting mauled to death by a wild animal. I cant recall the number, but you are much more likely to die the very painful route.

The lottery is essentially a government run, one game casino. How long do you think they would keep selling tickets, if it was -EV for them?

[elwoodblues]

[ QUOTE ]
I read the back of one lotterty ticket that said the odds were 400,000,000:1

[/ QUOTE ]

Those are some VERY long odds. The Powerball is 120 million to 1.
5 numbered balls 1 to 53.
1 numbered ball 1 to 42.

[bconway6]

[ QUOTE ]
The lottery is essentially a government run, one game casino. How long do you think they would keep selling tickets, if it was -EV for them?

[/ QUOTE ]

You’re right, the government isn’t going to run a –EV game. However the lottery can be looked at just the same as pot odds. If the odds of winning are greater than the odds the pot is giving you (i.e. odds of winning are 1 in 12 to win a pot that is 13 times the cost of making the bet) It is a +EV decision for you. Likewise if the odds of winning the lottery are 1 in 120,000,000 and the amount of cash you can win (after taxes and taking the lump sum payment) is $130,000,000 for your $1 ticket, it still has a positive expectation, just like calling the bet in the first pot. Granted the actual calculation would have to take into consideration of multiple winners and the like, but the principle is still the same. Also the jackpot would have to be much higher than $130,000,000 to account for taxes and taking the lump sum option. This is why it is said that the lottery is never +EV because the circumstances would be unbelievable.
The reason the Government can offer this +EV to you is because of all of the dead money that has already been put into the jackpot by other people. The announced Jackpot is only a percentage of the total money taken in from all tickets determined by some formula. The lottery already has its take from the pool before it is ever put up for grabs.

[elwoodblues]

[ QUOTE ]
Also the jackpot would have to be much higher than $130,000,000 to account for taxes and taking the lump sum option

[/ QUOTE ]

Do you factor taxes in when calling a bet in poker? If not, why would you do so here? Both incomes would be taxed.

[MelchyBeau]

unless you are playing really high stakes poker, the taxes per pot are going to be negligable. The taxes on the Lottery aren't

Also its much harder to hide Lottery winnings than winnings from poker

Melch

[bconway6]

[ QUOTE ]
Do you factor taxes in when calling a bet in poker? If not, why would you do so here? Both incomes would be taxed.

[/ QUOTE ]
For most people, myself included, their poker income is untaxed.
Even if your poker income is substantial enough to be taxed, It seems unlikely that that a specific pot is taxed any appreciable ammount. Whereas the tax on a large lump sum payment from the lottery is subject to a 32% tax. Although i definately dont know much about the tax laws and gambling.

[mannika]

If you are in a locality that taxes gambling, the tax would be on the net amount won, not on the individual pots won. Therefore, the tax is applied on the aggregate of your wins and losses. If we assume a theoretical tax rate of 50%, pot odds still apply because if the pot is $90 and you are facing a $10 bet, you will only get $50 after tax, BUT, if we assume you are a winning player and that in the long-run winnings > losses, then your bet of $10 is effectively tax deductable, and therefore, you are effectively facing a bet of $5 into a $45 pot, rather than a bet of $10 into a $90 pot. The odds remain the same.

[SossMan]

[ QUOTE ]
I read the back of one lotterty ticket that said the odds were 400,000,000:1. I once saw a comparison between the odds of winning the lottery versus getting mauled to death by a wild animal. I cant recall the number, but you are much more likely to die the very painful route.

The lottery is essentially a government run, one game casino. How long do you think they would keep selling tickets, if it was -EV for them?

[/ QUOTE ]

Reminds me of the story I read once where a guy who won a small state lottery died a year later after being struck by, of all things, lightning. Talk about a walking cliche

[elwoodblues]

[ QUOTE ]
For most people, myself included, their poker income is untaxed...Although I definately dont know much about the tax laws and gambling

[/ QUOTE ]

I understand that most people don't claim their poker incomes as income. They should, and it is illegal to not claim it as income.

[lu_hawk]

[ QUOTE ]
The lottery is essentially a government run, one game casino. How long do you think they would keep selling tickets, if it was -EV for them?

[/ QUOTE ]

I don't know the odds on the lotto but keep in mind if you have a slighty -EV situation for the gov't, say a 1 in 8mm chance of winning 10mm, then that can go from -EV to +EV based on the fact that they pay it out over 20 years and you have to figure the PV.

[gaming_mouse]

[ QUOTE ]
The lottery is essentially a government run, one game casino. How long do you think they would keep selling tickets, if it was -EV for them?


[/ QUOTE ]

This is faulty reasoning. It is certainly possible for the lotto to be +EV for everyone playing without it being -EV for the government. This will happen when there is alot of dead money in the prize pool -- the collected money from losing players of many past lotto draws. That is, you are winning the money of losing players, not the government's money.

Of course, when the prize pool gets large, more people typically will play, and then (because of the chance of splitting) it will usually still be a -EV situation.

But it's possible that sometimes the number of people playing does not go up even though the prize pool has gotten big. If you play in a situation like this it could well be a +EV situation.

Practically speaking, I would bet that such situations are extremely rare and possibly non-existent. But it's still possible.

gm