Watch this…
Investing $1 a week in the stock market is an even worse bet than the lottery. 52 $1 transactions would amass some tiny number of stocks that may increase by 10% by the end of the year. Those same stocks would have also accrued broker’s fees at a minimum of $208.
Investing this way would actually make you lose money with no chance of a positive return.
I look at it as a coin flip, every week someone usually wins.
So, the odds of Someone winning is pretty good, out of millions of tickets.
The odds of One Person in particular, like you or me winning…odds not so good, with only a hand full of tickets.
The odds go down rather significantly if you don’t play at all. 
I would not. A stupid decision that happens by blind luck to pay off is still a stupid decision.
Not if you keep the coin. Then you always “win”, even if it’s just a dollar.
It’s not a coin flip. It’s flipping a hundred coins and having them all come up heads.
And people don’t win every week. There are plenty of prizes that roll over because nobody had a winning ticket. Think about that. Fifty million tickets were sold and none of them was a winner.
I mentioned my plan on finding a free winning ticket earlier. And you’re right; your odds are better than mine.
With your plan, the odds are you’ll probably win a million dollar jackpot in fifty thousand years or so. My plan, on the other hand, is going to take me a lot longer.
Turned out to be a sucker bet in Florida even for people that don’t play. The people approved the state lottery proposition on the understanding that the additional revenue would all go towards education. Since Florida schools were (and are) awful, they figured that a little legal gambling was worth a few million a year to pay for books and so on.
Of course, as soon as revenues began rolling in, the legislature started cutting the traditional education budget, and now the lottery and education combine to spend a smaller percentage of the state budget on education than in 1988 when it was originally approved. :smack:
On the other hand, the Bright Futures scholarship program, which is directly funded by the Florida Lotto, paid for my first two years of college. So that’s nice.
Yes, I was in Florida at the time and I remember the billboards plastered with advertisements, “Vote for the Lottery! It’s for EDUCATION!”
Then everyone found out that the legislature pulled the “bait & switch” on them. Voters are idiots. Lawmakers are idiots. I guess we all deserve each other.
I have no trouble calculating the expected value on a ticket (and of course it’s negative [most of the time] or the state wouldn’t run lotteries), but I buy tickets anyway. $1 is a meaningless amount of money to me, but the thought of hitting it big makes me happy, which is a state of mind that usually costs me a lot more than a dollar 
.
It sort of works for me - until the drawing. Then, having won nothing, I suffer the old “Dang - they played me for a sucker again!” let-down, which more than makes up for the previous pleasant anticipation. So I gave it up after only a few tries.
But if you can get $1 or more worth of entertainment and don’t fall victim to post-drawing remorse, I say go for it.
I don’t see it as any more entertainment than buying a soda, or renting a dollar movie. Or eating a chocolate bar. A chocolate bar with a golden ticket inside! OK I’m not sure where I was going with this. I buy one or two if I think about it and I have the dollars to pay for it. I like to think about the many ways of quitting my job if I won it big. I’m still not sure if I want to come in and crap on my boss’ desk, or just quietly collect my stuff and disappear without telling them.
The true suckers are the poor schlubs like the guy in front of me at the lottery machine today, feeding five after five into it. It looked like he fed probably $40 into that machine easily, which was probably his life savings. I ended up leaving; he was taking forever, and it was really sad.
No, you got it just right. There’s only one way to look at gambling, even in terms of games with more even returns (like blackjack) - look at the amount you gamble as the amount you are prepared to lose, and consider it the cost of your evening’s entertainment.
If you assume that anything you lay on the table is gone, you won’t freak out when it is. The problem most people have with gambling is that they expect to win, and that’s when they start putting down more and more money to “win back” the money they lost. In fact, they didn’t lose anything - they spent it.
If you do win - well, hey, it’s a door prize.
A quick rule of thumb: divide the big dollar amount by 6. That’s roughly what the cash payout will be after taxes. It’s not exact, but it’s a reasonable ballpark amount. $30 million prize? You’ll walk away with somewhere around $5 mil.
Note: that’s for states with no income tax, like Texas.
Do you have a cite for that? Or was this the tax rate under that socialist Dwight Eisenhower?
Got anything to back that up with? A cite to Federal tax rates, and some quick arithmetic, at a minimum? The top Federal income tax rate is 35%, and the Social Security payroll tax only applies to the first ~$100K you earn each year. (And I don’t think it applies to unearned income such as lottery payoffs anyway. But even if it does, it’s capped, so it doesn’t take much of a bite from a big payoff. White noise.)
Do conservatives just make stuff like this up, to have something to get mad at the government about when they can’t come up with anything real? Just wondering.
You take approximately a 50% pay cut if you take the annuity instead of the lump sum. However, that’s not some sort of jack by the lottery people - if you take half the jackpot amount and purchased an annuity yourself, you’d get approximately double your investment over 26 years (not accounting for inflation). However, Clothahump’s “rule of thumb” isn’t even close. You pay Federal withholding tax of 25% on lottery winnings.
The Powerball people publish their own payout information right here.
The announced jackpot value is the annuity amount, not the lump sum amount - that’s kind of the jack. Here are the figures for Arkansas, which has no state income tax (per his example- the figures are essentially identical for any state without income tax), assuming a $90 million jackpot:
So if you elect the lump sum option your payout is actually 1/3, not 1/6.
I agree - the 1/6 figure is probably low.
Assume the one-time payout is roughly half the annuitized value - a 100 million jackpot refers to the amount you’d get if you take it over the 25-30 years. If you take it all right now, you’d get 50ish million.
If you live in a state where the income tax is large - let’s say 15% - then your total tax bite is 50%. Out of that 50 million you lose 25 million to taxes (with that high an income, it’s doubtful you’d be able to deduct any of your state income taxes!).
This leaves you with 25 million - or 1/4 of the total jackpot.
Also: It is possible that some states exempt lottery winnings from state tax. I don’t know if this is true, but if so it might reduce the tax burden.
I agree that the present value of annuity is less than the eventual payout and all, but I still say it’s a jack by the lottery people.
They collected all the lottery money *now *- and they advertise that you win X million dollars. You don’t. You win it 1/50th at a time for 50 years, not adjusted for inflation. They’re essentially borrowing the money you just won and paying it back without interest over 50 years.
(By the way, you may be playing the wrong casino games if you get only 90-95% 
)
There’s a simple math fallacy in this analysis. Rather than trying to explain it in English I’ll just demonstrate it with a simple example.
Let’s suppose a roulette wheel, and that you want to turn $100 into $900. You can achieve this (with 4 chances in 38 (37 in Europe)) by simply placing your $100 chip to touch 4 numbers. Vigorish = $5 (approx).
Another way to turn $100 into $900 at the roulette wheel is to win a series of even-money bets. Roulette wheel vigorish is constant across bets (the way it is played in U.S.A. – ignore European “en prise”) so after your first bet you’ve in a sense forfeited $5 vigorish whether you won or lost. But if you won (as you will almost half the time), you then place a $200 bet; thus “forfeiting” a further $10 vigorish. If that wins you place a $400 bet. Your expected loss to vigorish is already $15 and you’re only up to $800 (not $900) if you do win 3 times in a row. (An easier way to verify all this would be simply to calculate your chance of final success; you’ll see it’s higher when you make the higher-payoff bet.)
Stated more concisely, the vigorish on a single bet is not a single satisfactory measure of bet goodness (at least if there’s a chance you’ll make a 2nd bet!) This is why Keno is a relatively “smart” bet despite the 30% vigorish. And why Lotto is a better game than your analysis implies.
But I wouldn’t argue with the claim that many gambling options are like Tic-Tac-Toe and Thermonuclear Warfare: the best play of all may be not to play
You don’t live in a state where the income tax is 15%. Currently, the highest state income tax is Vermont’s, at 9.5%. Well, actually, it’s Hawaii, at 11%, but I don’t think they have a lottery anyway.
I suppose in theory you might live in one of the very few cities which levies its own income taxes on top of state taxes, but I’m pretty sure that even in those cases you’re at 10% total or below.
Now, the highest marginal federal tax rate is 35%, as you note - but you don’t pay federal income tax on lottery winnings, you pay the 25% withholding tax. The marginal income tax rates apply only to wages, salary and tips; unearned, retirement or investment income is taxed differently.
Anyway, even if it was taxed at the marginal earned income rates, state income tax paid would generally be deductible from taxable income at the federal level.
It’s only a jack if you don’t read the rules. It’s not like the annuity/lump sum is a secret or anything.
That’s how I feel, I always think of it in terms of quantum mechanics.
When I buy the ticket, I have opened up a whole new realm of probabilites, kind of like putting that cat in the box.
Instead of being “not rich”, I am neither “rich” nor “not rich”, until the time when I get the drawing results, the probabilities collapase and I go back to being just plain “not rich”.
I think you’re overthinking this. The standard form of analyzing the odds of different gambling systems is much simpler. You add up all the money the game takes in on average and add up all the money it pays out on average, then divide. That’s how casinos figure their odds. They figure they’ll pay out 98 cents for every dollar they collect in Blackjack and 95 cents for every dollar they collect in Roulette and 75 cents for every dollar they collect in Keno. Players can use the same odds with the additional factor that they can calculate the payout for a particular series of bets in a game (for example playing red or black in Roulette) rather than the total payout for all the bets in the game.
And as others have said, lotteries generally payout 50 cents or less on the dollar.