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]

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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]

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

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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