The haters indicate that the probability of winning the MegaMillions lottery is infinitesimally small. How small? Well, this graphic, via Businessweek, compares it to other improbable events.
Note that, once the lottery is won, the chances of dating a supermodel remarkably improve. As experienced mathematicians know, one must be careful to distinguish between independent and dependent probabilities.
I won't show the precise calculation here, but those of you know how to calculate combinations and permutations, it's pretty straightforward.
Haters might also point out that the dreamers are especially delusional to believe that, because the headline amount is actually larger than the odds of winning, some ticket buyers are deluding themselves into thinking that it actually represents a better bet than, say Vegas. The haters say that the dreamers are fools, for they are neglecting the possibility that multiple tickets will have the winning numbers. Even if a person wins, they could find out their winnings are much, much lower than expected if the jackpot is shared, either via a pool or through coincidental tickets. This is actually the plot of an entire Martin episode.
The haters strongest argument is that the expected value for a ticket, even with a jackpot this size, is most likely negative. A Time Magazine article indicates that the expected value estimates vary - one economist says that the expected value is actually positive ($1.23 payoff per $1 ticket), while a computer scientist claims that, based on simulations, the maximum expected payoff for a Mega Millions ticket is $0.69 (for a lottery of about $420 million). Assuming the computer scientist's figures are more correct, then Mega Millions tickets have a strongly negative payoff.
In fact, one of the strongest critiques of state lotteries are that they are a tax on the poor and ignorant. One study even claims the poor spend 9% of their income on lottery tickets. It is true that the vast majority of the revenue that feeds the lottery comes from the poor - the poor play more in both percentage and absolute terms.
Haters also claim that it promotes the belief that one can become rich through anything other than hard work, (or a lucky womb, or ridiculously clever tax attorneys).
The dreamers basic defense is that it's a combination of fun and hopeful.
It's fun to think about being wealthy, and even joke about the whole mania with others. It's fun to go to a store and chat in line with other people waiting for a ticket. It's fun to watch people and their "systems". It's fun to suspend disbelief - if it's not for you, then you must not like books, novels, or the 2012 Republican primaries.
Proponents of the premise of The Secret-- the premise of the Law of Attraction, if not the book itself--say that aspirational thinking can help clarify goals and enrich life now. Even if a person doesn't win the lottery, dreaming about what they would do with one, two, or ten million dollars is one step closer to actually planning and implementing it.
My behavioral econ is rusty, but I suppose it boils down to our ability to magnify certain low probability events (while marginalizing others). It's evolutionarily adaptive - seeing someone get killed by eating a funky mushroom might turn off the entire tribe from them.
More fundamentally, there's also the fact that the utility function of money doesn't necessarily need to be continuous. There are life-changing changes in wealth, and not-life-changing changes. The lottery, especially this one, has the potential to be life changing.
One final quantitative note: the rule of thumb for lotteries is that the lump sum is usually half. However, it looks like the lump sum offered is about 1.26%. This is pretty damn low, and reflective in general of low interest rates. Almost nobody takes the annuity anyway, but, when one considers the likelihood of inflationary pressures sometime in the next decade, rising interest rates, and higher taxes in the future, it's a particularly good time to be a lottery winner. Not that it's ever really a bad time. But if you win, send Ben Bernanke and the inventors of the mortgage-backed security and credit default swap some chocolates. The 2008 financial crisis made you considerably richer than you would have been otherwise.
Good luck folks! If you don't hear from me in the next couple weeks, that means I'm living on my own island somewhere.
No comments:
Post a Comment