Mega Millions Lottery – Odds, NPV, Sucker bets, and Hope (Barack Obama)
Today’s drawing for the Mega Millions Lottery is for an estimated $220 million (or $134.6 for the cash option). The odds of winning are…well….low. I mean it is a lottery. The odds of picking all 5 balls plus the powerball are 1 in 175,711,536. As you can see at Durango Bill’s website, you’re more likely to die in a car wreck driving to the store to buy your ticket than actually winning it. Additionally, the NPV of your $1 investment rarely creeps above 60 cents no matter how you do the math. That means as soon as you buy the ticket you’re virtually assured of a loss whereas that same $1 in a money market compounded over time will always generate a positive return on your capital. Is that at all sobering? I bet not.
Lottery is a sucker’s bet and most of the suckers know it, at least to some extent. I think the lottery is more about hope. There’s been a lot of talk about hope lately thanks to Obama and for all the hope that he seems to be spreading for free (or at great cost depending on your party affiliation). I think the desperation behind lottery ticket buyers requires a special kind of hope. It’s the hope that means you won’t have to give up your Hummer, 60 inch flat screen, and 5 bedroom house that you couldn’t afford to begin with so you’re up to your ears in debt. Because these are the people that buy lottery tickets. And, it’s the hope that you won’t have to work that 2nd job or the extra shifts at the factory to pay for the rent in the dilapidated apartment you feel lucky to have where tonight’s dinner is the store brand of instant mashed potatoes because that’s all there is and you’re just getting by to keep a roof over you and the kids. Because these too are the people that play the lottery and hope to win. And, it is a fleeting hope and almost certainly a false one. Because everytime they draw those numbers and they aren’t your numbers the hope is lost. And the only way to get it back is to buy again.
It’s insidious. And the government gets you either way. Assuming you win and take the cash option, the government’s going to be taking roughly $55 million for themselves in taxes. And please don’t give me crap about supporting education through the lottery. You want to support education? Volunteer to teach a kid to read. Volunteer to teach for one hour one day a year about the values associated with personal finance. Offer to sponsor a teacher’s school supplies so he/she doesn’t have to use their own paycheck for materials.
I have hope. It’s the hope that none of you ever play the lottery or that you stop playing today and put that money in the bank or education or some other cause you believe in. I have hope. It’s the hope that you never feel so desperate that the lottery odds feel like the best chance you’ve got to make it in this world.