Well actually when the lotteries get large enough the odds start to get decent. a 1 in 76,000,000 chance with a 102,000,000 payoff is the best gambling expectation you will ever find.
It’s obviously not that simple as the that though. Since every new ticket sold also has a chance of winning as well which cuts down on your expectation. But in general, weeks when there is a huge carry over (large amount of money in the pot, that doesn’t correspond to chances to win) from previous weeks, the bet isn’t all that bad.
My law firm has advised two lottery winners over the years, and while I do not practice in the financial/estate planning area, I listened with interest to the considerations that those guys weighed in advising the clients to take the annuity as opposed to the lump sum. In both situations, the clients were low income folks, not really sophisticated with money, and relatives/friends/neighbors/drinking buddies came SWARMING out of the woodwork, pitching “investment opportunities” (read as: handouts), and charities of all shapes and sizes began literally knocking on their doors. One lady was the nicest person in the world, and we figured she would have a tough time saying “no” to anyone. Getting it in an annuity gave her a convenient excuse to turn some of these people away, at least until the next year. Some close relatives of the other lady had some really fishy backgrounds, and we figured if they could rob her blind, they would. So far, both are enjoying their winnings with no great complaints.
In a perfect world, I think the lump sum beats the annuity hands down, but how upset would you be if you had your $6 million nest egg half into Enron stock?
Oh yeah, smart guy? Oops. Stockton eats crow, with a little ground pepper and a splendid papaya-basil-curry sauce. Comes with a side of shoe leather and some humble pie for dessert. I’ll eat my hat, too, since I read that in the local rag. Thanks for the reality check:
Q. In the event that an annuity jackpot winner passes away before collecting an entire jackpot prize, what happens to the remaining prize money?
A. Remaining payments would continue to be paid to the winner’s estate in annual installments.
Oh yeah, smart guy? Oops. Stockton eats crow, with a little ground pepper and a splendid papaya-basil-curry sauce. Comes with a side of shoe leather and some humble pie for dessert. I’ll eat my hat, too, since I read that in the local rag. Thanks for the reality check:
Q. In the event that an annuity jackpot winner passes away before collecting an entire jackpot prize, what happens to the remaining prize money?
A. Remaining payments would continue to be paid to the winner’s estate in annual installments.
Why would anyone read a book or watch a movie. It’s fun. It allows people to indulge their fantasies.
The main reason for the annuity is to make the jackpots seam larger. At least the Big Game is paid over 20 years. New York’s is 26 years so the cash value is less than half the advertised amount and, unlike many other states, New York taxes lottery winnings.
As fun as the dream of winning may be. It doesn’t compare to the fear that if you do not join the office pool, the pool will win and you will get bubkus.
I would be interested in the annuity rate for a recent prize, if anyone has this information (or even just the raw data - tables are easy to find). Are the funds actually extant, segregated, guaranteed and the whole nine-yards, or does the Lottery Corporation keep the money in general funds and pay the annuity itself? i.e., who takes the investment risk of the annuity? Not the winner, surely, but is it the Lottery Corporation or the investment manager?
Also, what’s the pay-out ratio on these things, on an all-in basis? I understand from the postings that prizes can go un-won and accumulate, so the pay-out ratio can vary week to week (theoretically exceeding 100%, I suppose, although it’s a bit of a stretch to imagine that happening)?
Can I suppose too, that these are State run? So in fact, in addition to a house take of (I guess) 50%, the State Treasuror gleefully observes that winnings are taxable but losses aren’t deductible, boosting the effective winnings of the State by running the thing up another 17% - odd?
Yeah, I was off by a factor of 10. Dagnabit. I guess when I figured it in my head I was thinking “It can’t be 140 CDs on every seat.” But that just makes it that much worse!
For everyone playing “the dream”, have fun. I still hold that if people really saw how small a number 1 in 14,000,000, or even worse, 1 in 76,000,000 really is, no one would play.
I find it hard to believe anyone has played a fair (as in carnival, not as in equitable) game with worse odds. But I’ve certainly been surprised by a lot of things, so this would just be one more to add to the list.
The next question would be “why play?”, but I’m sure I’ll be met with a resounding “because it is fun.” Fair enough, I guess. But be it this or any other game with such slim odds, I view it as simply throwing away money. YMMV. However, comments like the one about worrying what would happen if your office mates won and you didn’t make it pretty clear just how little the odds are really understood.
Usually people tell me the money is insignificant and the dream is well worth it. I have no problems with that. Seriously. I just don’t think the concept of 1 in 1,000,000 registers.
At some point, try to find a pool of 1,000 objects. Maybe the leaves on a small tree or the cars in a mall parking lot or take two stacked reams of paper. Look how big that pool is. Then think about having to pick out just 1 of those objects. Think about if you would pay $1 to get two guesses to find a single object out of the pool (For a payout of $2000). Now realize that 1000 is 1000 times less than 1,000,000. You would have 1000 parking lots or 1000 trees or 2000 reams of paper.
Clearly people win the lottery. Could someone calculate the odds of winning if you don’t play?
The lottery=stupid tax is just harsh, and unnecessarily so. I’d be interested in hearing how much the average schmoe spends per week on the lottery, and how that would mature if it were put into an investment vehicle. Anyone feel up to the challenge?
If you define winning as finishing with more than you started with, you can make the odds pretty good by simply diverting your lottery ticket money to some mundane investment.
Playing for entertainment (as many Dopers obviously do) makes some sense. Those who play as a way of making money deserve that harsh view.
Do you mean the odds of winning the lottery? Clearly they are 0 if you don’t play.
Odds of winning the jackpot if you do play are easy to calculate. Assume that you play $4/week for 20 years. That is 8 games a week for 20 years.
Odds of winning the jackpot are: 1/76,000,000 * 8 * 52 * 20 = .0001 or about 1/10000.
Total amount spent after 20 years: $4,160
Total if invested at 5%, compounded yearly: $7221
Lost money: $3,061
Assuming I did my math right this time. If not, I’m sure I’ll find out!
One more thing. There is something called an expected return on these things. If you were to bet even money with a friend on a (fair) coin toss, and you did this game for a very long time, you would expect to end up with exactly the same amount you started with. Your expected return is 0. This value takes into account not only your odds of winning, but the payout should you actually win. Vegas was built on this concept. (And state lotteries.)
In the case of the lottery, the payout is, I believe, about 70% of the take. So, over the long term, you can expect to lose 30% of your money if you play for a long time.
When the Navy hands out its re-signing bonuses, it usually offers a lump-sum payment or a yearly installment plan. I think one reasons for the installment plan is to avoid winding up in a higher tax bracket.
cmosdes, I’m really bad with numbers, so I don’t understand where you’re coming from factoring in the numbers of games and years. My impression was that it didn’t matter how long you played, since each and every time you play it’s a totally new game and an independent set of odds. Therefore, shouldn’t my odds at the end of that 20 years would be exactly the same (assuming a constant number of players) as it was at the beginning of the 20 years?
Each and every time you play your odds of winning that time are 1/76,000,000. If you buy two tickets, your odds for each ticket are 1/76,000,000. So, combined, they are 2/76,000,000.
Look at it like buying that many tickets for 1 jackpot. Doesn’t matter if you buy them over 20 years or all at once, your odds are the same.
Just because you lose 8,319 times in a row (85220-1) doesn’t mean your odds of winning on the next play will be 1/10000. Even on the next play your odds are 1/76,000,000. However, combined, over the entire trial, your odds were 1/10000 that somewhere in that 20 years you would hit the jackpot.
By my calculations, the discount rate is 6.09%, not 8.25%. (For anyone interested, use any spreadsheet to calculate the IRR, showing positive streams of $325/26 offset my negative $170,950,000 in first year).
[sub](Just yankin yer chain, no bad feelings intended here.)[/sub]
