Strategy on lottery tickets

Yes I know the probability of drawing each combination is the same, BUT the payout is not.
More people to split the Jackpot, less you will receive.

So while "1,2,3,4,5,6" is "fun" to play, it would be nothing compare to the look on your face when you realize you hit the jackpot and so did 30 other people.

So basically the question boils down to: how to avoid popular combinations.

I basically don't buy numbers below 32.

Any other suggestions / funny ideas?

Don't play

Quote: strictlyAP

Don't play

Now this brings up another topic.

While lottery is a -'ve expectation game, meaning that the probability of win * payout < the cost of the ticket, and this is certainly true most of the time, I would like to analyze it in a different context using marginal utility.

The law of diminishing marginal utility states that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Look at it backwards, and the marginal utility of the 1st dollar gained would be minimal when compared to the total utility of the whole amount gained.

So I would say, nominally, probability of win * payout < the cost of the ticket.
But when you consider marginal utility, probability of win * total utility of payout > marginal utility of the cost of the ticket (at least for the first few dollars)

In laymen terms, I won't cry over the dollar, but it would make me really happy if I win a million.

I have a good friend who says the lottery is a voluntary stupidity tax upon the mathematically challenged.
While I doubt many, if any here, would disagree with that. Is a buck for a ticket on the Mega Millions or Power Ball, when its at a 200+ million jackpot ,that stupid that it should be avoided like the plague?
I can find a bucks worth of change in the drive thru of almost any fast foot joint. Skip a bag of chips with the sandwich at lunch, its really not too difficult to find a lousy buck.

I will say that dropping a C note a week on scratchers, and another on the BP and MM is just flat out stupidity.

Quote: andysif

I basically don't buy numbers below 32.

If you're going to buy a ticket, this is one of the better ideas. I remember asking a chick at a gas station once if she could give me a quick pick with all numbers > 31, she said no, but I believe the computer can do it if the employee knows how.

On the very rare occasions I bought a ticket I generated random numbers either based on bank notes in my pocket or number plates on cars going by (previously most UK number plates had three digits so the last two were fairly random). Another much easier way is to use a pack of cards (assuming the numbers are 1 - 49 and you can use AK...2s = 1-13 etc).

Precisely. What's a buck or two. You will get a bigger bang for those bucks in Vegas though. Where the same attitude carries over: its only a buck on the sidebet ... each round.

No one has to order the most nutritious item on the menu or walk by the most direct route or be efficient before morning coffee, but if you restrain yourself each week of the lottery you will be better off when you do finally hit Vegas.

Lottery can be positive EV but not too often. You really only need one number above 31 to avoid splits with birthday numbers. Any effort really isn't worth the time so I just go with autopick.

The Ohio classic lotto just was won so I won't be playing again for probably 2-3 years. It was a 35 million dollar cash jackpot with odds of just under 14 million. Even positive, it's still just buying a fantasy.

Just to show how big a rip the lottery is, after the jackpot wasn't hit after so long, the lottery enacted a new rule to rip the spare change from jackpot increases making them whole amounts in hundred thousand amounts keeping the remainder.

I thank players for paying my taxes (reducing them)

It's funny that if you take a poll, most people will say they would prefer a smaller prize with shorter odds but their behavior is the opposite. Everybody goes nuts when powerball gets way up there. In R.I. we had a million dollar raffle promotion in the fall leading up to new years. It was $20- per ticket with 100,000 tickets sold with some $5000- drawings along the way. They stopped doing it I assume for lack of participation.

On the very few occasions I purchase a lottery ticket, I use the computer generated numbers out of laziness. But if I was going to spend the time to fill in the bubbles (which I probably never will), I'd pick numbers prime number over 32. My experience is that many people have an aversion to prime numbers, somehow feel they are unlucky or 'bad'.

Quote: MidwestAP

On the very few occasions I purchase a lottery ticket, I use the computer generated numbers out of laziness. But if I was going to spend the time to fill in the bubbles (which I probably never will), I'd pick numbers prime number over 32. My experience is that many people have an aversion to prime numbers, somehow feel they are unlucky or 'bad'.

You mean like 7 and 11 ;-)

OP:

you are right about your utility logic. It is not automatically stupid to gamble a very low amount to win a very high amount against the odds.

BUT, why EVER play the lottery? Typically the expected value of most lottery tickets is aroung 0.5. i.e. for every dollar wagered only 50 cents go in the prize pool. That is terrible. Go find a roulette wheel once a week, pick a number, put your dollar down and let it ride four times. (You will have to get permission from a floorperson at the end, but I assume they would happily take your action.)

You stand to win about 1.6 million with a probability of 1 in 1.8 million, your expected value being 0.8.

If you are gonna put down a dollar on a long shot, do it smartly.

Quote: MidwestAP

On the very few occasions I purchase a lottery ticket, I use the computer generated numbers out of laziness. But if I was going to spend the time to fill in the bubbles (which I probably never will), I'd pick numbers prime number over 32. My experience is that many people have an aversion to prime numbers, somehow feel they are unlucky or 'bad'.

my experience is that many people don't even know what a prime number is...

Quote: andyg99

my experience is that many people don't even know what a prime number is...

+1

For big jackpot games, when the payout exceeds the odds I'll sometimes toss them $1 (Mega Millions) or $2 (Powerball). I think the rough figures are $200M for Mega Millions and $300M for Powerball. At that kind of payout, the fantasy is worth the price.

For scratch offs, some states publish up-to-date sales & redemption data. When there's a $100K winner out there and only 10K $5 tickets left for sale, it might be worth your time to buy some tickets. Hell, if you had $50K in your pocket it might be worth the trouble to tour the entire state buying up every ticket you could find.

Most of the time, the way most people play, it's a voluntary tax with a very poor pay table. Especially if you're playing any kind of video lottery and are within driving distance of a casino. Even the worst pay table in the worst Indian casino in the country pays better than just about every video lottery game there is.

Quote: andysif

Now this brings up another topic.

While lottery is a -'ve expectation game, meaning that the probability of win * payout < the cost of the ticket, and this is certainly true most of the time, I would like to analyze it in a different context using marginal utility.

The law of diminishing marginal utility states that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Look at it backwards, and the marginal utility of the 1st dollar gained would be minimal when compared to the total utility of the whole amount gained.

So I would say, nominally, probability of win * payout < the cost of the ticket.
But when you consider marginal utility, probability of win * total utility of payout > marginal utility of the cost of the ticket (at least for the first few dollars)

In laymen terms, I won't cry over the dollar, but it would make me really happy if I win a million.

If you win that 200,000,000 + tell us the strategy including hand-out offers, beggars, pleaders, stalkers, and some nefarious others. You might have to disconnect your complete on-line profile. Or just spend LOTS of money protecting yourself.

Like 99.99% of the others, including myself, I would be VERY unprepared. Knowing that, and becoming too famous (and wealthy) for my own good, I have decided to deline. My mother of 90 years with one foot on a banana peel and the other foot next to a tombstone partakes a buck or two now and again.

Quote: 98Clubs

If you win that 200,000,000 + tell us the strategy including hand-out offers, beggars, pleaders, stalkers, and some nefarious others. You might have to disconnect your complete on-line profile. Or just spend LOTS of money protecting yourself.

Here's the bible on how not to become suicidal after winning a huge jackpot:

https://drive.google.com/file/d/0B88w5M9jUS4yOVNwQTBwWERfUk0/edit?usp=sharing

(DISCLAIMER - the following is presented uncut, and there is some profanity. If a mod wants it edited or deleted, I'd be happy to oblige. I did not write it, just copy/paste for your amusement and enlightenment.)

Austrian's Semi-Annual "Guide For Recent Lottery Winners (Or Deluded Hopefuls)"
http://www.ar15.com/archive/topic.html?b=1&f=5&t=828009
Author: Austrian [Member]
2/7/2009 9:12:08 PM CST

Well, with the economy in tatters it is unsurprising that we might see a sudden increase in lottery posts in the General forum. That is usually the signal that it is once again time for me to cull through the archives and repost my guide for recent lottery winners (or hopefuls).

So, without further ado, here it is:



Congratulations! You just won millions of dollars in the lottery! That's great.

Now you're f****d.

No really.

You are.

You're f&&&&d.

I've seen this question (what to do if you win the lottery), a few times on ARFCOM. Amusingly, it recurs quite often. I posted a similar article to this one "back when" but I've updated it with some actual stories and slapped it in GD because, well, why not?

Keep in mind: IAALBNY (I Am A Lawyer But Not Yours). Consult professional advisers before spending your hard earned lottery cash.

It's long. There are no cliff notes. But if you just want to skip the tales of woe of some of the math-tax protagonists, skip on down to the line in bold.

You see, it's something of an open secret that winners of obnoxiously large jackpots tend to end up badly with alarming regularity. Not the $1 million dollar winners. But anyone in the nine-figure range is at high risk. Eight-figures? Pretty likely to be screwed. Seven-figures? Yep. Painful. Perhaps this is a consequence of the sample. The demographics of lottery players might be exactly the wrong people to win large sums of money. Or perhaps money is the root of all evil. Either way, you are going to have to be careful. Don't believe me? Consider this:

Large jackpot winners face double digit multiples of probability versus the general population to be the victim of:

Homicide (something like 20x more likely)
Drug overdose
Bankruptcy (how's that for irony?)
Kidnapping

And triple digit multiples of probability versus the general population rate to be:

Convicted of drunk driving
The victim of Homicide (at the hands of a family member) 120x more likely in this case, ain't love grand?
A defendant in a civil lawsuit
A defendant in felony criminal proceedings

Believe it or not, your biggest enemy if you suddenly become possessed of large sums of money is... you. At least you will have the consolation of meeting your fate by your own hand. But if you can't manage it on your own, don't worry. There are any number of willing participants ready to help you start your vicious downward spiral for you. Mind you, many of these will be "friends," "friendly neighbors," or "family." Often, they won't even have evil intentions. But, as I'm sure you know, that makes little difference in the end. Most aren't evil. Most aren't malicious. Some are. None are good for you.

Jack Whittaker, a Johnny Cash attired, West Virginia native, is the poster boy for the dangers of a lump sum award. In 2002 Mr. Whittaker (55 years old at the time) won what was, also at the time, the largest single award jackpot in U.S. history. $315 million. At the time, he planned to live as if nothing had changed, or so he said. He was remarkably modest and decent before the jackpot, and his ship sure came in, right? Wrong.

Mr. Whittaker became the subject of a number of personal challenges, escalating into personal tragedies, complicated by a number of legal troubles.

Whittaker wasn't a typical lottery winner either. His net worth at the time of his winnings was in excess of $15 million, owing to his ownership of a successful contracting firm in West Virginia. His claim to want to live "as if nothing had changed" actually seemed plausible. He should have been well equipped for wealth. He was already quite wealthy, after all. By all accounts he was somewhat modest, low profile, generous and good natured. He should have coasted off into the sunset. Yeah. Not exactly.

Whittaker took the all-cash option, $170 million, instead of the annuity option, and took possession of $114 million in cash after $56 million in taxes. After that, things went south.

Whittaker quickly became the subject of a number of financial stalkers, who would lurk at his regular breakfast hideout and accost him with suggestions for how to spend his money. They were unemployed. No, an interview tomorrow morning wasn't good enough. They needed cash NOW. Perhaps they had a sure-fire business plan. Their daughter had cancer. A niece needed dialysis. Needless to say, Whittaker stopped going to his breakfast haunt. Eventually, they began ringing his doorbell. Sometimes in the early morning. Before long he was paying off-duty deputies to protect his family. He was accused of being heartless. Cold. Stingy.

Letters poured in. Children with cancer. Diabetes. MS. You name it. He hired three people to sort the mail. A detective to filter out the false claims and the con men (and women) was retained.

Brenda, the clerk who had sold Whittaker the ticket, was a victim of collateral damage. Whittaker had written her a check for $44,000 and bought her house, but she was by no means a millionaire. Rumors that the state routinely paid the clerk who had sold the ticket 10% of the jackpot winnings hounded her. She was followed home from work. Threatened. Assaulted.

Whittaker's car was twice broken into, by trusted acquaintances who watched him leave large amounts of cash in it. $500,000 and $200,000 were stolen in two separate instances. The thieves attempted to spike Whittaker's drink with prescription drugs in the first instance. Whittaker was violently allergic to the drug used, and likely would have died given the distance to the nearest emergency room, and the lateness of the hour, but, fortunately he did not consume the drink containing the narcotics. The second incident was the handiwork of his granddaughter's friends, who had been probing the girl for details on Whittaker's cash for weeks.

Even Whittaker's good-faith generosity was questioned. When he offered $10,000 to improve the city's water park so that it was more handicap accessible, locals complained that he spent more money at the strip club. (Amusingly this was true).

Whittaker invested quite a bit in his own businesses, tripled the number of people his businesses employed (making him one of the larger employers in the area) and eventually had given away $14 million to charity through a foundation he set up for the purpose. This is, of course, what you are "supposed" to do. Set up a foundation. Be careful about your charity giving. It made no difference in the end.

To top it all off, Whittaker had been accused of ruining a number of marriages. His money made other men look inferior, they said, wherever he went in the small West Virginia town he called home. Resentment grew quickly. And festered. Whittaker paid four settlements related to this sort of claim. Yes, you read that right. Four.

His family and their immediate circle were quickly the victims of odds-defying numbers of overdoses, emergency room visits and even fatalities. His granddaughter, the eighteen year old "Brandi" (who Whittaker had been giving a $2100.00 per week allowance) was found dead after having been missing for several weeks. Her death was, apparently, from a drug overdose, but Whittaker suspected foul play. Her body had been wrapped in a tarp and hidden behind a rusted-out van. Her seventeen year old boyfriend had expired three months earlier in Whittaker's vacation house, also from an overdose. Some of his friends had robbed the house after his overdose, stepping over his body to make their escape and then returning for more before stepping over his body again to leave. His parents sued for wrongful death claiming that Whittaker's loose purse strings contributed to their son's death. Amazingly, juries are prone to award damages in cases such as these. Whittaker settled. Again.

Even before the deaths, the local and state police had taken a special interest in Whittaker after his new-found fame. He was arrested for minor and less minor offenses many times after his winnings, despite having had a nearly spotless record before the award. Whittaker's high profile couldn't have helped him much in this regard.

In 18 months Whittaker had been cited for over 250 violations ranging from broken tail lights on every one of his five new cars, to improper display of renewal stickers. A lawsuit charging various police organizations with harassment went nowhere and Whittaker was hit with court costs instead.

Whittaker's wife filed for divorce, and in the process froze a number of his assets and the accounts of his operating companies. Caesars in Atlantic City sued him for $1.5 million to cover bounced checks, caused by the asset freeze.

Today Whittaker is badly in debt, and bankruptcy looms large in his future.

But, hey, that's just one example, right?

Wrong.

Nearly one third of multi-million dollar jackpot winners eventually declare bankruptcy. Some end up worse. To give you just a taste of the possibilities, consider the fates of:

Billie Bob Harrell, Jr.: $31 million. Texas, 1997. As of 1999: Committed suicide in the wake of incessant requests for money from friends and family. "Winning the lottery is the worst thing that ever happened to me.”

William "Bud” Post: $16.2 million. Pennsylvania. 1988. In 1989: Brother hires a contract murderer to kill him and his sixth wife. Landlady sued for portion of the jackpot. Convicted of assault for firing a gun at a debt collector. Declared bankruptcy. Dead in 2006.

Evelyn Adams: $5.4 million (won TWICE 1985, 1986). As of 2001: Poor and living in a trailer gave away and gambled most of her fortune.

Suzanne Mullins: $4.2 million. Virginia. 1993. As of 2004: No assets left.

Shefik Tallmadge: $6.7 million. Arizona. 1988. As of 2005: Declared bankruptcy.

Thomas Strong: $3 million. Texas. 1993. As of 2006: Died in a shoot-out with police.

Victoria Zell: $11 million. 2001. Minnesota. As of 2006: Broke. Serving seven year sentence for vehicular manslaughter.

Karen Cohen: $1 million. Illinois. 1984. As of 2000: Filed for bankruptcy. As of 2006: Sentenced to 22 months for lying to federal bankruptcy court.

Jeffrey Dampier: $20 million. Illinois. 1996. As of 2006: Kidnapped and murdered by own sister-in-law.

Ed Gildein: $8.8 million. Texas. 1993. As of 2003: Dead. Wife saddled with his debts. As of 2005: Wife sued by her own daughter who claimed that she was taking money from a trust fund and squandering cash in Las Vegas.

Willie Hurt: $3.1 million. Michigan. 1989. As of 1991: Addicted to cocaine. Divorced. Broke. Indicted for murder.

Michael Klingebiel: $2 million. As of 1998 sued by own mother claiming he failed to share the jackpot with her.

Janite Lee: $18 million. 1993. Missouri. As of 2001: Filed for bankruptcy with $700 in assets.

Mack Metcalf: $65 million. Kentucky. 2000. As of 2001: Divorced. As of 2002: Sued girlfriend for $500,000 claiming he was drunk when he gave it to her. Sued by wife for child support. As of 2003: Died of alcoholism. As of a few months later in 2003: Second wife bought a mansion with the money, collected dozens of stray cats and died of a drug overdose immediately after moving in.

I could go on quite a bit.

So, what the hell DO you do if you are unlucky enough to win the lottery?

This is the absolutely most important thing you can do right away: NOTHING.

Yes. Nothing.

DO NOT DECLARE YOURSELF THE WINNER yet.

Do NOT tell anyone. The urge is going to be nearly irresistible. Resist it. Trust me.

1. IMMEDIATELY retain an attorney. Get a partner from a larger, NATIONAL firm. Don't let them pawn off junior partners or associates on you. They might try, all law firms might, but insist instead that your lead be a partner who has been with the firm for awhile. Do NOT use your local attorney. Yes, I mean your long-standing family attorney who did your mother's will. Do not use the guy who fought your dry-cleaner bill. Do not use the guy you have trusted your entire life because of his long and faithful service to your family. In fact, do not use any firm that has any connection to family or friends or community. TRUST me. This is bad. You want someone who has never heard of you, any of your friends, or any member of your family. Go the the closest big city and walk into one of the national firms asking for one of the "Trust and Estates" partners you have previously looked up on http://www.martindale.com from one of the largest 50 firms in the United States which has an office near you. You can look up attorneys by practice area and firm on Martindale. The top 50 firms by size are:

Baker & McKenzie
DLA Piper Rudnick Gray Cary
Jones Day
White & Case
Latham & Watkins
Skadden, Arps, Slate, Meagher & Flom
Sidley Austin Brown & Wood
Greenberg Traurig
Mayer Brown, Rowe & Maw
Morgan, Lewis & Bockius
Holland & Knight
Wilmer Cutler Pickering Hale and Dorr
Weil, Gotshal & Manges
Kirkland & Ellis
Morrison & Foerster
McDermott, Will & Emery
Shearman & Sterling
Hogan & Hartson
Kirkpatrick & Lockhart Nicholson Graham
Reed Smith
O’Melveny & Myers
Akin Gump Strauss Hauer & Feld
Paul, Hastings, Janofsky & Walker
Foley & Lardner
Fulbright & Jaworski
Cleary Gottlieb Steen & Hamilton
Pillsbury Winthrop Shaw Pittman
Dechert
King & Spalding
Bingham McCutchen
Wilson, Elser Moskowitz, Edelman & Dicker
Winston & Strawn
Squire, Sanders & Dempsey
Hunton & Williams
Gibson, Dunn & Crutcher
Orrick, Herrington & Sutcliffe
Bryan Cave
Vinson & Elkins
Ropes & Gray
Proskauer Rose
Heller Ehrman
Alston & Bird
McGuireWoods
Simpson Thacher & Bartlett
Baker Botts
Sonnenschein Nath & Rosenthal
Debevoise & Plimpton
Nixon Peabody
Paul, Weiss, Rifkind, Wharton & Garrison
LeBoeuf, Lamb, Greene & MacRae

2. Decide to take the lump sum. Most lotteries pay a really pathetic rate for the annuity. It usually hovers around 4.5% annual return or less, depending. It doesn't take much to do better than this, and if you have the money already in cash, rather than leaving it in the hands of the state, you can pull from the capital whenever you like. If you take the annuity you won't have access to that cash. That could be good. It could be bad. It's probably bad unless you have a very addictive personality. If you need an allowance managed by the state, it is because you didn't listen to point #1 above.

Why not let the state just handle it for you and give you your allowance?

Many state lotteries pay you your "allowance" (the annuity option) by buying U.S. treasury instruments and running the interest payments through their bureaucracy before sending it to you along with a hunk of the principal every month. You will not be beating inflation by much, if at all. There is no reason you couldn't do this yourself, if a low single-digit return is acceptable to you.

You aren't going to get even remotely the amount of the actual jackpot. Take our old friend Mr. Whittaker. Using Whittaker is a good model both because of the reminder of his ignominious decline, and the fact that his winning ticket was one of the larger ones on record. If his situation looks less than stellar to you, you might have a better perspective on how "large" your winnings aren't. Whittaker's "jackpot" was $315 million. He selected the lump-sum cash up-front option, which knocked off $145 million (or 46% of the total) leaving him with $170 million. That was then subject to withholding for taxes of $56 million (33%) leaving him with $114 million.

In general, you should expect to get about half of the original jackpot if you elect a lump sum (maybe better, it depends). After that, you should expect to lose around 33% of your already pruned figure to state and federal taxes. (Your mileage may vary, particularly if you live in a state with aggressive taxation schemes).

3. Decide right now, how much you plan to give to family and friends. This really shouldn't be more than 20% or so. Figure it out right now. Pick your number. Tell your lawyer. That's it. Don't change it. 20% of $114 million is $22.8 million. That leaves you with $91.2 million. DO NOT CONSULT WITH FAMILY when deciding how much to give to family. You are going to get advice that is badly tainted by conflict of interest, and if other family members find out that Aunt Flo was consulted and they weren't you will never hear the end of it. Neither will Aunt Flo. This might later form the basis for an allegation that Aunt Flo unduly influenced you and a lawsuit might magically appear on this basis. No, I'm not kidding. I know of one circumstance (related to a business windfall, not a lottery) where the plaintiffs WON this case.

Do NOT give anyone cash. Ever. Period. Just don't. Do not buy them houses. Do not buy them cars. Tell your attorney that you want to provide for your family, and that you want to set up a series of trusts for them that will total 20% of your after tax winnings. Tell him you want the trust empowered to fund higher education, some help (not a total) purchase of their first home, some provision for weddings and the like, whatever. Do NOT put yourself in the position of handing out cash. Once you do, if you stop, you will be accused of being a heartless bastard (or bitch). Trust me. It won't go well.

It will be easy to lose perspective. It is now the duty of your friends, family, relatives, hangers-on and their inner circle to skew your perspective, and they take this job quite seriously. Setting up a trust, a managed fund for your family that is in the double digit millions is AMAZINGLY generous. You need never have trouble sleeping because you didn't lend Uncle Jerry $20,000 in small denomination unmarked bills to start his chain of deep-fried peanut butter pancake restaurants. ("Deep'n 'nutter Restaurants") Your attorney will have a number of good ideas how to parse this wealth out without turning your siblings/spouse/children/grandchildren/cousins/waitresses into the latest Paris Hilton.

4. You will be encouraged to hire an investment manager. Considerable pressure will be applied. Don't.

Investment managers charge fees, usually a percentage of assets. Consider this: If they charge 1% (which is low, I doubt you could find this deal, actually) they have to beat the market by 1% every year just to break even with a general market index fund. It is not worth it, and you don't need the extra return or the extra risk. Go for the index fund instead if you must invest in stocks. This is a hard rule to follow. They will come recommended by friends. They will come recommended by family. They will be your second cousin on your mother's side. Investment managers will sound smart. They will have lots of cool acronyms. They will have nice PowerPoint presentations. They might (MIGHT) pay for your shrimp cocktail lunch at TGI Friday's while reminding you how poor their side of the family is. They live for this stuff.

You should smile, thank them for their time, and then tell them you will get back to them next week. Don't sign ANYTHING. Don't write it on a cocktail napkin (lottery lawsuit cases have been won and lost over drunkenly scrawled cocktail napkin addition and subtraction figures with lots of zeros on them). Never call them back. Trust me. You will thank me later. This tactic, smiling, thanking people for their time, and promising to get back to people, is going to have to become familiar. You will have to learn to say no gently, without saying the word "no." It sounds underhanded. Sneaky. It is. And its part of your new survival strategy. I mean the word "survival" quite literally.

Get all this figured out BEFORE you claim your winnings. They aren't going anywhere. Just relax.

5. If you elect to be more global about your paranoia, use between 20.00% and 33.00% of what you have not decided to commit to a family fund IMMEDIATELY to purchase a combination of longer term U.S. treasuries (5 or 10 year are a good idea) and perhaps even another G7 treasury instrument. This is your safety net. You will be protected... from yourself.

You are going to be really tempted to starting being a big investor. You are going to be convinced that you can double your money in Vegas with your awesome Roulette system/by funding your friend's amazing idea to sell Lemming dung/buying land for oil drilling/by shorting the North Pole Ice market (global warming, you know). This all sounds tempting because "Even if I lose it all I still have $XX million left! Anyone could live on that comfortably for the rest of their life." Yeah, except for 33% of everyone who won the lottery.

You're not going to double your money, so cool it. Let me say that again. You're not going to double your money, so cool it. Right now, you'll get around 3.5% on the 10 year U.S. treasury. With $18.2 million (20% of $91.2 mil after your absurdly generous family gift) invested in those you will pull down $638,400 per year. If everything else blows up, you still have that, and you will be in the top 1% of income in the United States. So how about you not f**k with it. Eh? And that's income that is damn safe. If we get to the point where the United States defaults on those instruments, we are in far worse shape than worrying about money.

If you are really paranoid, you might consider picking another G7 or otherwise mainstream country other than the U.S. according to where you want to live if the United States dissolves into anarchy or Britney Spears is elected to the United States Senate. Put some fraction in something like Swiss Government Bonds at 3%. If the Swiss stop paying on their government debt, well, then you know money really means nothing anywhere on the globe anymore. I'd study small field sustainable agriculture if you think this is a possibility. You might have to start feedng yourself.

6. That leaves, say, 80% of $91.2 million or $72.9 million. Here is where things start to get less clear. Personally, I think you should dump half of this, or $36.4 million, into a boring S&P 500 index fund. Find something with low fees. You are going to be constantly tempted to retain "sophisticated" advisers who charge "nominal fees." Don't. Period. Even if you lose every other dime, you have $638,400 per year you didn't have before that will keep coming in until the United States falls into chaos. F**k advisers and their fees. Instead, drop your $36.4 million in the market in a low fee vehicle. Unless we have an unprecedented downturn the likes of which the United States has never seen, should return around 7.00% or so over the next 10 years. You should expect to touch not even a dime of this money for 10 or 15 or even 20 years. In 20 years $36.4 million could easily become $115 million.

7. So you have put a safety net in place. You have provided for your family beyond your wildest dreams. And you still have $36.4 million in "cash." You know you will be getting $638,400 per year unless the capital building is burning, you don't ever need to give anyone you care about cash, since they are provided for generously and responsibly (and can't blow it in Vegas) and you have a HUGE nest egg that is growing at market rates. (Given the recent dip, you'll be buying in at great prices for the market). What now? Whatever you want. Go ahead and burn through $36.4 million in hookers and blow if you want. You've got more security than 99% of the country. A lot of it is in trusts so even if you are sued your family will live well, and progress across generations. If your lawyer is worth his salt (I bet he is) then you will be insulated from most lawsuits anyhow. Buy a nice house or two, make sure they aren't stupid investments though. Go ahead and be an angel investor and fund some startups, but REFUSE to do it for anyone you know. (Friends and money, oil and water - Michael Corleone) Play. Have fun. You earned it by putting together the shoe sizes of your whole family on one ticket and winning the jackpot.

You 'da Man (Woman).

Quote: andysif

The law of diminishing marginal utility states that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts.

Look at it backwards, and the marginal utility of the 1st dollar gained would be minimal when compared to the total utility of the whole amount gained.
[...]
In laymen terms, I won't cry over the dollar, but it would make me really happy if I win a million.

I don't think you understand the "law of diminishing marginal utility", or whatever you want to call a convex utility function.

In plain words: the gain in utility of a single dollar is *larger* than the 50% chance of 2 dollars.
Applied to lottery tickets: the gain in utility of a single dollar (that you don't spend on lottery tickets) is larger than your chance winning the jackpot (even if it's fair).

Maybe a topic for DT but I am not sure why liberals don't complain about the lottery as is a tax on the poor as they are far more likely to play regularly than the average middle class person.

Every time someone comes up with the common sense idea of a national sales tax or such, liberals are up in arms about it being a tax on the so called "poor", never thinking about how much underground money it would get out there to pay down the debt.

Tax the "rich" more is their only answer because already paying more than 50% of your income between state, local and federal is not enough for this crew. Yet not a word about the lottery. And you wonder why liberal is such a dirty word they themselves even had to change it to "progressive"

- playing lottery because being poor
- being poor because playing the lottery
- having a distorted view on economic decisions (leading to being more prone to poverty and being hooked on lottery).

These are three thesis claiming "lottery as tax for the poor".
Quite frankly it is often the latter of the three. The top was a woman buying all kinds of insurance policies, and at the same time buying all kind of lottery tickets.

Why paying EV for some fluctuation (buying lottery tickets) when you can easily earn EV for some fluctation (by not buying insurances for minor dimensions)...

You can play the state draws online at some sites which aren't as big of rip-offs. I think they pay 90% compared to 48-50%. No progressive plays for them I don't think.

Quote: andysif

Now this brings up another topic.

While lottery is a -'ve expectation game, meaning that the probability of win * payout < the cost of the ticket, and this is certainly true most of the time, I would like to analyze it in a different context using marginal utility.

The law of diminishing marginal utility states that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Look at it backwards, and the marginal utility of the 1st dollar gained would be minimal when compared to the total utility of the whole amount gained.

So I would say, nominally, probability of win * payout < the cost of the ticket.
But when you consider marginal utility, probability of win * total utility of payout > marginal utility of the cost of the ticket (at least for the first few dollars)

In laymen terms, I won't cry over the dollar, but it would make me really happy if I win a million.

So when keeping your explicit dollar cost to a nearly non-material amount as defined according to one's individual utility curve, is the time standing in line with 'The People of Wal-Mart' to buy the numbers game thingy when it has a relatively large (and hence apparently popular) carryover a "cost" along with that dollar? Or is it actually a benefit to some, extending the excited anticipation for those who enjoy these? I don't know and am not well equipped to guess because I'm just haven't been supplied with the lottery/keno/slot gene that seems necessary.

Quote: Canyonero

OP:

you are right about your utility logic. It is not automatically stupid to gamble a very low amount to win a very high amount against the odds.

BUT, why EVER play the lottery? Typically the expected value of most lottery tickets is aroung 0.5. i.e. for every dollar wagered only 50 cents go in the prize pool. That is terrible. Go find a roulette wheel once a week, pick a number, put your dollar down and let it ride four times. (You will have to get permission from a floorperson at the end, but I assume they would happily take your action.)

You stand to win about 1.6 million with a probability of 1 in 1.8 million, your expected value being 0.8.

If you are gonna put down a dollar on a long shot, do it smartly.

quite interesting. wonder why i never thought of that.

Hmmmm. That sounds more fun to me. Don't know why, and not trying to tell anyone else it should for them.

That'd also be around the same hold as the relatively high (compared to straight wagers) takeout on a super-exotic race-wager such as the pick-6, which will sometimes have carryovers creating pools well into seven figures at some major tracks, such as Santa Anita. You could choose to do that for a minimum of $2 (either taking six straight singles in each race on the ticket, or a ticket with two potential winners being two $1 wagers on the one ticket with a single for five races) and have a comped drink in the bargain when making any pari-mutual wager at many books (though some do have a minimum requirement for a drink ticket on both sides of the book along with the sports side), while waiting for the one in the six-race sequence that kills your ticket. Of course that carries the danger of stumbling into a consolation payout of only a few thousand for five of six, and getting cheesed-off at missing by thiiiiiiis much in the last race after being glued to your seat through hitting the first five.

And, I guess this doesn't really quite speak directly to your plan to increase EV of (mostly) random selections of random outcomes.

Good luck finding a casino that'll let you bet $1,296 on the inside, much less $46,656.

I have won the Belgian lottery once.

I had written a program to analyze the results for some twenty years of draws. As such I was able to (unprecisely) gather what kinds of bulletins the people were playing. The intuition I read above about prime numbers is wrong: people do play them, they probably look more random to them. There is an excessively great amount of people playing "1,2,3,4,5,6" or "2,12,22,32,42,52" or the like. Also birth dates and such.

But mostly, before the generalisation of QuickPicks, people were influenced by the visual pattern of their bulletin. Consequently, thay play more in the centre than on the borders and, conspicuously, the corners. On the other hand, there are those who reason like the OP did, try to play "differently" and they overreact, playing for example the six numbers that are less played, or geometric figures.

In the end, I was using broken patterns : one part was "too geometric" to be played by the common, but one or two numbers were at odds with the pattern (which was not going to be played by the strategic players). I used some but not all the less-played numbers, often adding one of the often-played numbers, agin to break the pattern.

Alas ! My technique was not optimal. The day I won, where the jackpot was € 2,000,000 , we still were five winners, so the €400,000 were not enough to stop working. It allowed me to buy a house.

Courteline wrote: "There is no subtler pleasure as to pass for a fool in the eyes of an imbecile." (My translation)

I always have that feeling when hearing the above quote about the lottery being a tax levied on the mathematically challenged. This is usually expressed by people with a very feable grasp of mathematics.

1. Firstly, it is by no means a tax issue.
When you choose to participate in your local community tombola, your EV is definitely negative. Yet you do it because you consciously choose to donate. Our National lottery is spending about 45% of the cash (i.e. 90% of their revenue) to social and cultural benefits. I am proud to participate in the effort. When I say it is no tax, I particularly mean that, were we not to play, there would NOT be more taxes from the government. These are two totally different budgets and even organisations. The NLottery is not an administration.


2. Secondly, the mathematically challenged are those who are not able to see that there is more than expectation in the field of decision under uncertainty. Their argument is incredibly stupidly simplistic : "The EV is negative so those who play you can't do the math". Well, boys, ever heard of variance? of distribution of gains? of utility?

If the EV argument were to be valid, then there would be no insurance company, as taking an insurance is a negative EV prospect. Would you go as far as saying all the people insured are "mathematically challenged"? Do you neglect buying an insurance yourself? I hope not, for your sake.

• You take an insurance, you play the lottery, because you are not comparing monetary amounts but life-affecting events. The random draw is between paying a small sum each month, that you can afford, and the dramatic shift in your life that is the loss of your house or the gain of a jackpot. The premium is but a small price to pay for the life result, whatever the probabilities and the monetary amounts.
  
  Please note: this has nothing to do with convex monetary utility functions. This is about non-monetary discontinuous effects.

• A fire or a lottery win is not a repeated event.
  
  When playing in the casino, you definitely are going to repeat your bet a certain number of times, likely enough to get to central-limit asymptotic results where the EV is a meaningful parametre.
  Expectation is an additive measure. As such, it is essentially useful in situations where the random event is repeated, and its results are added. That is the case for the insurance compny or the Lottery: they have so many clustomers that they can focus on an expected result and small relative variance.
  
  But you as an isured, me as a lottery player, are playing a once-in-a-lifetime game. No matter how many premiums we pay in the course of our life, it never goes to the heights of the values we are hoping to win or not lose. In other words, we never reach a state where the number of trials changes enough the variance and/or skewness of the distribution, to make it posible to restrict oneself on the expectation and a Gaussian distribution. We MUST take into account variance and skewness.
  Reperiet qui quaesiverit

And winning ONLY $10,000,000 will not be enough......


http://www.thestar.com/news/gta/2013/03/21/hamilton_lottery_winner_fritters_away_10_million.html

Quote: coilman

And winning ONLY $10,000,000 will not be enough......


http://www.thestar.com/news/gta/2013/03/21/hamilton_lottery_winner_fritters_away_10_million.html

Of course not. $10,000,000 in that Canadian funny money is like, what, tree fiddy in USD? ;)

I don't think you can completely separate the lottery from being a tax issue.

In my state, a certain percentage of the revenue from the lottery has gone towards the educational system. The tax-generated revenue to the educational system is reduced, since their budget is being covered in part from lottery revenue. So, you have shifted the burden of paying for the educational system from an actual tax to a tax replacement, which may be affecting a different portion of the population in various ways.

What has not happened is a bunch of bonus money to education because of lottery revenues. Total educational funding is in fact being reduced, even with lottery income.

Quote: Deucekies

Good luck finding a casino that'll let you bet $1,296 on the inside, much less $46,656.

The $1296 isn't a problem in Las Vegas, but the $46656 isn't going to happen.

Quote: Face

Of course not. $10,000,000 in that Canadian funny money is like, what, tree fiddy in USD? ;)

Why can't I flag this post as offensive :D

Quote: kubikulann

If the EV argument were to be valid, then there would be no insurance company, as taking an insurance is a negative EV prospect.

Well yes. But taking insurance and playing the lottery are two different things. The first one (insurance) reduces variance on life-changing events. The second one (lottery) increases variance on life-changing events. I cannot see how you would want both at the same time.

Quote: MangoJ

Well yes. But taking insurance and playing the lottery are two different things. The first one (insurance) reduces variance on life-changing events. The second one (lottery) increases variance on life-changing events. I cannot see how you would want both at the same time.

Taking insurance means paying a smaller amount to get paid a larger amount in certain circumstances. Lottery is the same thing. Both are -EV, the circumstances under which they payout and the amount of -EV are the only differences. Both at the same time is perfectly consistent.

Sorry, I must disagree.

If your personal utility function is convex, meaning that singular large losses are worse than frequent small losses, you take insurances.
But on the same time, for a convex utility function, you favor frequent small wins over a singular large wins. Hence you would never want to play lottery.

Again, the purpose of insurance is reducing variance (yes, it is a high-variance negative EV bet, but it is anti-correlated to other loss events, which reduces overall variance). On the contrary, playing the lottery (still a high-variance negative EV bet) is not correlated to anything, so it increases your overall variance. With taxes on winnings it is even much worse.

Quote: Boz

Maybe a topic for DT but I am not sure why liberals don't complain about the lottery as is a tax on the poor as they are far more likely to play regularly than the average middle class person.

Every time someone comes up with the common sense idea of a national sales tax or such, liberals are up in arms about it being a tax on the so called "poor", never thinking about how much underground money it would get out there to pay down the debt.

Tax the "rich" more is their only answer because already paying more than 50% of your income between state, local and federal is not enough for this crew. Yet not a word about the lottery. And you wonder why liberal is such a dirty word they themselves even had to change it to "progressive"

Progressives are even worse than liberals.

Quote: DRich

The $1296 isn't a problem in Las Vegas, but the $46656 isn't going to happen.

The $46,656 wouldn't happen even if the casino allowed it. If I parleyed $1 into $46,656 I'd feel like a damn fool letting ride on a roulette number.

Quote: thecesspit

Why can't I flag this post as offensive :D

Try this link ;+) No clue if it will work.

Quote: MangoJ

If your personal utility function is convex, meaning that singular large losses are worse than frequent small losses, you take insurances.
But on the same time, for a convex utility function, you favor frequent small wins over a singular large wins. Hence you would never want to play lottery.

Is there any compelling reason why a utility function must be uniformly convex (or concave)?
As I feel it, the $2 or $5 I spend are naught compared with the amount won or repaid. This sort of means that I have a concave stretch around zero, although there is convexity further up and down.

Also, you don't take into account the time effect. The small amount is a regular payment, while the big amount is a one-time job. Would you say that it is equivalent to pay monthly premiums or a one-time lump-sum? Definitely not.
I have never seen a satisfactory model of inter-temporal utility function. Anyway, being multivariate, the notion of convexity is immediately much more complicated - probably irrelevant.

Finally, as I said, non-monetyary events cannot be measured in terms of continuous functions, let alone convex one-variable ones. In the fireinsurance case, for example,, the money repayment is to be combined with the loss of personal objects, souvenirs, maybe a loved one. Does anyone think you can compare this with the lottery case, using monetary utility functions?

Quote: MangoJ

Again, the purpose of insurance is reducing variance (yes, it is a high-variance negative EV bet, but it is anti-correlated to other loss events, which reduces overall variance). On the contrary, playing the lottery (still a high-variance negative EV bet) is not correlated to anything, so it increases your overall variance. With taxes on winnings it is even much worse.

I'm not sure I agree that "the" purpose is reducing variance, though I admit it plays a role.

Yet most players here will agree that in -EV games, the player should prefer large variance.
Why is that?
The difference lies not in variance but in skewness. Insurance reduces the variance of a negative EV game with (large) negative skewness. Lottery increases variance of a negative EV game with (large) positive skewness.

I think the discussion goes to the right direction. One can argue whether or not a utility function should be convex or concave, or something else.

Probably it is "something else" - but we can at least imagine a concave utility function and see what decisions it would produce, and then decide if these are somewhat rational. For a everywhere concave utility function, for any independent fair bet the win per probability is larger than the utility of the loss per probabiltiy.
Which means you would play any fair game offered for any amount of time or stakes. You would basically want to bet your whole fortune on any fair game. Is that economical ? Obviously it isn't - once you lose you cannot gain utility anymore as you have nothing to stake. Even if you bet a constant fraction of your wealth, you are eventually hitting ruin. A everywhere-concave utility function is simply not sustainable, even if EV is zero. Obviously economics is worse if EV is negative.

So any rational agent with a fear of ruin has at least a convex region of utility at the lower end.

What about the upper end ? Do you risk a million for a 1:1000 chance for a billion ?

I think the math gets a little bit complicated when the amount involved is "big", but if we restrict the amount to only your disposal income then we are still safe to assume it's concave.

Quote: andysif

I think the math gets a little bit complicated when the amount involved is "big", but if we restrict the amount to only your disposal income then we are still safe to assume it's concave.

Are you sure you do not mean "convex"?

My opinion (no facts, alas) is that we humans treat differently what is perceived as a loss and what is perceived as a gain. This theory is compatible with several paradoxes raised by Allais, Ellsberg, Tversky & Kahnemann, etc.

So I can imagine our utility function as one convex function in the negative range, and another in the positive range, but the connection between both at zero makes for a (angular) concave zone. Then it may be perfectly rational to play the lottery.

Please note that what I personnally think is that we humans do not function as computers. There is, I think, no utility function. We are still waiting for philosophers, psychologists and economists to build a satisfactory model of decision under uncertainty.

Quote: kubikulann

So I can imagine our utility function as one convex function in the negative range, and another in the positive range, but the connection between both at zero makes for a (angular) concave zone. Then it may be perfectly rational to play the lottery.

This. Convex local favor insurance, concave favor lottery. Of course utility functions are highly subjective. One could indeed define a gambler's mind for relying on a concave utility - as he is willing (as he actually does) to pay for variance. The degenerate gambler then stretches his concave zone to the very lower end.

And it is likely for lottery players, to stretch their concave utility up in the higher ranges. Maybe this is the problem why some (or most) heavy-million winners fail: they have no clear concept of utility, and any unrational action gets amplified by huge amounts. Plus, there is social pressure "to do" something.

Quote: andysif

Yes I know the probability of drawing each combination is the same, BUT the payout is not.
More people to split the Jackpot, less you will receive.

So while "1,2,3,4,5,6" is "fun" to play, it would be nothing compare to the look on your face when you realize you hit the jackpot and so did 30 other people.

There was an ad campaign for California's Lotto where they asked celebrities what numbers they played. Either Steve Jobs or Steve Wozniak said "1 2 3 4 5 6, since that's just as likely a combination as any other."

In a 6-number game, I expect the most popular combinations to be the ages and birthdays of a couple and their only child, so I would also try to keep away from any set where four of the numbers are in 1-31. In MegaMillions, I would expect the child's age to be the "red" number, so 3 of the 5 "white" numbers would be in 1-31.

Quote: kubikulann

I have won the Belgian lottery once.

I had written a program to analyze the results for some twenty years of draws. As such I was able to (unprecisely) gather what kinds of bulletins the people were playing. The intuition I read above about prime numbers is wrong: people do play them, they probably look more random to them. There is an excessively great amount of people playing "1,2,3,4,5,6" or "2,12,22,32,42,52" or the like. Also birth dates and such.

But mostly, before the generalisation of QuickPicks, people were influenced by the visual pattern of their bulletin. Consequently, thay play more in the centre than on the borders and, conspicuously, the corners. On the other hand, there are those who reason like the OP did, try to play "differently" and they overreact, playing for example the six numbers that are less played, or geometric figures.

In the end, I was using broken patterns : one part was "too geometric" to be played by the common, but one or two numbers were at odds with the pattern (which was not going to be played by the strategic players). I used some but not all the less-played numbers, often adding one of the often-played numbers, agin to break the pattern.

Alas ! My technique was not optimal. The day I won, where the jackpot was € 2,000,000 , we still were five winners, so the €400,000 were not enough to stop working. It allowed me to buy a house.

Whoa, seriously? When did you win? How much taxes did you pay on the 400K? Do you still live in Belgium?

Quote: AcesAndEights

Whoa, seriously? When did you win? Back in 2008
How much taxes did you pay on the 400K? None. Lottery gains (and casino) are not taxable. Belgium is sort of a fiscal paradise for capital and a fiscal hell for work.
Do you still live in Belgium? Yes. It was not enough to quit working for a living, and as a teacher it is difficult to be hired in another country (EU free circulation, my ass!)

Quote: kubikulann

Quote: AcesAndEights

Whoa, seriously? When did you win? Back in 2008
How much taxes did you pay on the 400K? None. Lottery gains (and casino) are not taxable. Belgium is sort of a fiscal paradise for capital and a fiscal hell for work.
Do you still live in Belgium? Yes. It was not enough to quit working for a living, and as a teacher it is difficult to be hired in another country (EU free circulation, my ass!)

Wow, I'm just surprised I've never heard this story before. If you've told it on the forum, I missed it!

I agree that it wouldn't be enough to retire on, but I certainly hope it moved your schedule up quite a bit! If I won the equivalent in USD (about $544K based on current exchange rates, not sure what it was like back in 2008) I would still need to work, but probably only for another 4 or 5 years. Hmmm. Would have to run the numbers on that.

I hope you didn't go on a shopping spree and change your lifestyle too much after that windfall...would be tough for most people...

Quote: AcesAndEights

I hope you didn't go on a shopping spree and change your lifestyle too much after that windfall...would be tough for most people...

Oh ! no. I put it on an account and waited for a good opportunity of finding a new house. Real estate is not cheap in Brussels (siege of the EU, NATO, etc.)

Return rates are quite low (or too risky) to generate a decent revenue from €400,000 , I don't know how you would manage to retire after 5 years :-)

The good thing, as lond as that money was on an account, was that I felt sooo free in my relationship with the hierarchy. "If they don't like it, bugger them!"
Now that all is in my house, I'm back in the sad inferior position where I need the job.