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