4a. Re: VP vs. Blackjack??
Posted by: "Rein Reed" reinreed@gmail.com reinreed
Date: Sun Jun 24, 2007 4:33 pm ((PDT))One downside of lotteries is you split the winnings if you hit the jackpot.
For example, the Powerball (a big multi-state lotto available here in PA) is
+EV when the progressive jackpot is > $114 million (which does happen from
time to time), but that is assuming you don't end up splitting the jackpot.
If just one other person picked the same number (the chances of which
probably increase as the jackpot increases, as more people will
theoretically play), then you would need the jackpot to be > $228 million,
which I've never seen.
This is absolutely correct regarding the split -- but there ARE some errors.
Powerball is currently about 146,000,000 to one against hitting the jackpot, so if the cash option needs to be about twice as much, the jackpot needs to be nearly $300 million to justify the bet as "positive expectation" -- without a split, and ignoring taxes (yes, you can deduct your losses, but I hope you don't have anything close to that in losses!!!).
I think the Powerball odds USED to be around 110 to 120 million to one, but they added some numbers to the mix (guess that wasn't hard enough to hit) -- and you don't get paid the entire jackpot at once -- you either get it over many years in equal installments (I think 20 or 30 years, might be more), OR you take the cash option, which is adjusted down, presumably to the present value that is equivalent to the multi-year payment, and presumably adjusted at intervals to allow for changing interest rates.
Only the cash option, representing what you actually can get paid right now, should be used in calculating whether the jackpot is high enough to justify the multi-million to one shot of hitting it.
There IS a further offset, for the smaller prizes that can be won, but, while I've never done the math, I don't think they are large enough or occur frequently enough themselves or have enough positive expectation themselves to offset the jackpot from being the primary consideration as to whether or not to play the lottery.
And, incidentally, the jackpot HAS been over $300 million at least once (I think the record was $350 million), so it CAN get high enough to make it a good bet - once in a great while.
And for those who DO play Powerball, the answer to "PowerPlay?" is NO -- rather than pay $2 a ticket to get the random multiplier (from 2 to 6, I don't think 1 is in the mix) on less-than-jackpot payouts, you have a greater expected return on two $1 "regular" tickets - and that ignores the extra shot at the big jackpot, a significant consideration.
Likewise, the Hoosier Lottery hasn't been hit in about nine months. It's a little over 12 million to one against being hit, and although the jackpot goes up slowly, it's now at $35 million (which, if not a record, is getting close), again a positive expectation bet even after figuring cash option, but NOT allowing for the split jackpot possibility, nor the taxes.
If the money one spends on lotteries is TOTALLY recreational - you would otherwise "throw it away" on something else that has no lasting value -- then the decision can be made to play with less than positive expectation, the justification being that there is no other way you can spend $1 (or probably even $5) twice a week and have any hope of becoming a multi-millionaire -- I don't think even a savings account converted to a successful options account would get you there at that low investment rate!
--BG
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