I am a statistician and I buy lottery tickets(simplexify.net)
simplexify.net
I am a statistician and I buy lottery tickets
http://simplexify.net/blog/2012/5/6/i-am-a-statistician-and-i-buy-lottery-tickets.html
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That's a very interesting view point/experience. For me, it's been the opposite. If I'm really happy, feel a bit like I'm on top of my fiances for this fortnight, I'll "splash out" and buy a Powerball ticket.
If I'm down, the idea of giving away money on such a silly endeavour seems stupid.
Anyway, here's hoping you don't buy too many powerball tickets in the immediate future!
If I'm down, the idea of giving away money on such a silly endeavour seems stupid.
Anyway, here's hoping you don't buy too many powerball tickets in the immediate future!
[deleted]
Conspicuous consumption.
I buy lottery tickets occasionally when I feel a bit down about money - doing so is a win-win.
If I win a prize greater than my stake, then that's great.
If I don't, then it reminds me that I can still afford to throw away a few pounds every now and then without it being a significant loss.
If I win a prize greater than my stake, then that's great.
If I don't, then it reminds me that I can still afford to throw away a few pounds every now and then without it being a significant loss.
Evolution is often all-or-nothing --- no one produces "half a child". This is especially true of men, if you believe the 40-80 figure [1]: 40% of men have descendants vs 80% for women. We are the descendants of A) successful people [2] and B) unsuccessful people who took a big gamble (winning the lottery; robbing a bank; crossing the ocean to find better opportunities) that made them wealthy enough to reproduce.
[1] I'm not sure I do.
[2] Obviously - "successful" here basically means "had children". Evolution is a tautology.
[1] I'm not sure I do.
[2] Obviously - "successful" here basically means "had children". Evolution is a tautology.
Actually people have "half a child" all the time. Every time a sibling reproduces, for example, that's half a child.
So there's a perfectly viable strategy of helping your siblings have more children instead of having more children yourself. If you can create more than 2 successful sibling-children for every child you don't have, your inclusive genetic fitness is increased.
This doesn't mean your conclusion (people gamble! men gamble more than women!) is wrong, but your line of reasoning is.
So there's a perfectly viable strategy of helping your siblings have more children instead of having more children yourself. If you can create more than 2 successful sibling-children for every child you don't have, your inclusive genetic fitness is increased.
This doesn't mean your conclusion (people gamble! men gamble more than women!) is wrong, but your line of reasoning is.
Good point. Evolution is a complex balance.
If you want to go for this kind of effect, gamble big, and gamble once: you aim for a high standard deviation compared to expected loss.
Even though you do actually buy a sense of hope, it makes you worry more about missing an opportunity to win ("if only I had bought a few more tickets"). So it goes both ways and personally I feel happier by ignoring these (statistically - mostly false) hopes.
(OTOH I still need to worry about key employees winning the lottery, but that's another sad/cynical story.)
(OTOH I still need to worry about key employees winning the lottery, but that's another sad/cynical story.)
I had a statistics professor at college who were addicted to gaming. There were stories about him losing a lot of money, car, job and wife because of his addiction. I thought it were just a joke, you know, statistics professor addicted to lottery? Duh, I wouldn't fall for that. Until one day, to demonstrate that a specific class of combinations were too rare, he challenged a girl in the first row that if she rolled a dice x times she wouldn't get that kind of result. He was so confident that he told us he would pass us all in the test if she did. Well, she did. He did keep his word and passed us. Did I mention he was a phd?
That thought me a huge lesson about argument of authority. And about the quality of college graduates in Brazil.
That thought me a huge lesson about argument of authority. And about the quality of college graduates in Brazil.
Interesting you should say that.
Richard Feynman on education in Brazil: http://v.cx/2010/04/feynman-brazil-education
..and the associated HN discussion: http://news.ycombinator.com/item?id=2483976
Richard Feynman on education in Brazil: http://v.cx/2010/04/feynman-brazil-education
..and the associated HN discussion: http://news.ycombinator.com/item?id=2483976
I loved Surely You're Joking Mr. Feynman! But to be fair, it was written nearly 30 years ago. I would hope things have gotten better since then.
Not really, at least, not consistently.
"Thus, it must be possible for some people to work their way through the system, bad as it is."
It is possible.
When my young brother asked me about how electrical generators worked (which is, by itself, an unusual question), I had an idea. I hooked up a DC motor to a LED and started cranking it, and he could see the LED lighting up, however faintly. Only then I tried to explain roughly how it worked - that little demonstration kept him interested. And he could explain it later, on his own words.
He didn't grow up to be a scientist, but he thinks like one. I like to think that those little 'scientific' experiments of our youth had something to do with it.
"Thus, it must be possible for some people to work their way through the system, bad as it is."
It is possible.
When my young brother asked me about how electrical generators worked (which is, by itself, an unusual question), I had an idea. I hooked up a DC motor to a LED and started cranking it, and he could see the LED lighting up, however faintly. Only then I tried to explain roughly how it worked - that little demonstration kept him interested. And he could explain it later, on his own words.
He didn't grow up to be a scientist, but he thinks like one. I like to think that those little 'scientific' experiments of our youth had something to do with it.
Wow, I had never read this piece before, but it exactly describes the croatian school system. Kids & students just memorising information. Even the teachers don't explain what something means, because they also went through school memorising stuff.
Not really, no
Unfortunately an addiction can rarely be battled by simple rationality. So even if he can calculate his chances of winning perfectly well, and theoretically understand that it is a poor use of his money, he may still have to give in to his addiction.
I doubt that his students understood that gambling is something you could be addicted to in the first place.
I won the UK National Lottery jackpot as part of a syndicate. Two years later, I won it again on my own.
The wins have had two effects on how I evaluate odds: first, so-called 'remote' probabilities I once found reassuring – the odds of being hit by lightning in your lifetime is 1 in 10,000 or the chances of being killed in a train crash are 1 in 500,000 – no longer have a calming effect. This can make me both nervous and acutely risk-aware. Some people call this introverted.
Second, the converse has also become true: so-called 'impossible' odds – the chance of winning the National Lottery jackpot three times, for example – no longer deter me from participating. This can make me both irrational and actively risk-seeking. Some people call this extroverted.
Regardless of this dichotomy, the OP's point of view rings true for me: the decision to play the lottery lies in entertainment value alone. It is unlikely that I will win again. But it is hard to resist the questions hammered out in lottery marketing campaigns. The ones designed to undermine rational resistance to extraordinary odds: "What would you do if you did win?" or, more bluntly, "How would you spend it?"
It is harder still to resist simple cost-benefit analysis, which leaves the same question I've had since the beginning: is dreaming worth the cost of entry? My answer is always the same:
You bet it is.
The wins have had two effects on how I evaluate odds: first, so-called 'remote' probabilities I once found reassuring – the odds of being hit by lightning in your lifetime is 1 in 10,000 or the chances of being killed in a train crash are 1 in 500,000 – no longer have a calming effect. This can make me both nervous and acutely risk-aware. Some people call this introverted.
Second, the converse has also become true: so-called 'impossible' odds – the chance of winning the National Lottery jackpot three times, for example – no longer deter me from participating. This can make me both irrational and actively risk-seeking. Some people call this extroverted.
Regardless of this dichotomy, the OP's point of view rings true for me: the decision to play the lottery lies in entertainment value alone. It is unlikely that I will win again. But it is hard to resist the questions hammered out in lottery marketing campaigns. The ones designed to undermine rational resistance to extraordinary odds: "What would you do if you did win?" or, more bluntly, "How would you spend it?"
It is harder still to resist simple cost-benefit analysis, which leaves the same question I've had since the beginning: is dreaming worth the cost of entry? My answer is always the same:
You bet it is.
Insurance has an interesting comparison to lottery tickets. In a lottery ticket, the expected return is usually about 50%. Which is exactly the same as insurance (the premium is about double the expected payout).
Yet people regard insurance as prudent, and lottery tickets as foolish. Me included (as long as its a risk you cant easily cover).
But our explanation, that "Lottery tickets are foolish because they have a negative expected return" isn't exactly credible if we think insurance is a good deal.
Any thoughts?
Yet people regard insurance as prudent, and lottery tickets as foolish. Me included (as long as its a risk you cant easily cover).
But our explanation, that "Lottery tickets are foolish because they have a negative expected return" isn't exactly credible if we think insurance is a good deal.
Any thoughts?
The difference is that insurance is not about the expected return at all - it's about managing risk. The "payout" from insurance is tied to events that can happen whether or not you have insurance, and which would ruin you financially without it.
The expected payout from insurance is only relevant when the above does not hold, i.e. you have enough liquid funds to cover the loss against which you're insured. A good example are non-health-related travel insurances (e.g. against cancellation expenses or baggage loss). Your argument is correct in these cases - these insurances are a net loss and cover a risk that you could simply bear. So you should not buy them.
The expected payout from insurance is only relevant when the above does not hold, i.e. you have enough liquid funds to cover the loss against which you're insured. A good example are non-health-related travel insurances (e.g. against cancellation expenses or baggage loss). Your argument is correct in these cases - these insurances are a net loss and cover a risk that you could simply bear. So you should not buy them.
Exactly. If risk is defined as financial uncertainty, then lottery tickets and insurance are in fact complete opposites with regard to managing risk. Insurance is designed to minimize financial uncertainty and lottery tickets (gambling) to increase it.
Indeed. Also, most people are risk averse, so they are happy to purchase insurance with an EV (expected value) equal to less than the premium simply to avoid the gamble.
Not indeed. Variance matters. Look at the hedge fund industry.
Expected return is insufficient if you can't recover from death to regress to the mean. So yeah, zombies shouldn't buy insurance
Expected return is insufficient if you can't recover from death to regress to the mean. So yeah, zombies shouldn't buy insurance
Insurance pays out when you lose your job or crash your car; ie, when you get unlucky. Lotteries pay out when your pick of numbers was a better pick than ten million other people; ie, when you get lucky.
Economics has repeatedly suggested that the natural logarithm of dollars is an approximation of the utility of money.
When you're lucky, you go from 50k to 50m. In logarithms, 10.819 to 17.727. When you're unlucky, you go from 50k to effectively 0. Which is 10.819, to negative infinity - but probably, you'll have enough to live on, so like 1 (0). So you gain almost 7 utility for playing the lottery, but lose more than 10 for not playing the insurance. (The closeness of seven and ten explains why so many uninsured people play the lottery.)
Economics has repeatedly suggested that the natural logarithm of dollars is an approximation of the utility of money.
When you're lucky, you go from 50k to 50m. In logarithms, 10.819 to 17.727. When you're unlucky, you go from 50k to effectively 0. Which is 10.819, to negative infinity - but probably, you'll have enough to live on, so like 1 (0). So you gain almost 7 utility for playing the lottery, but lose more than 10 for not playing the insurance. (The closeness of seven and ten explains why so many uninsured people play the lottery.)
Have any links that expand on this idea?
But our explanation, that "Lottery tickets are foolish
because they have a negative expected return" isn't
exactly credible if we think insurance is a good deal.
My theory is the marginal utility [1] of your first home, which you stand to lose, is greater than the marginal utility of a second home, which you stand to gain.
[1] http://en.wikipedia.org/wiki/Marginal_utility
Alternatively, this is just more evidence that most people are risk-averse.
Insurance is about trading money for utility. The assumption is that your utility curve in the lossy region is sublinear, i.e. U(-$1e6) << 1e6 x U(-$1), and that the probability of a large loss is low (e.g., 1e-6).
In that case, if you pay a guaranteed -$1, your expected utility loss is U(-$1). If you have a 1e-6 chance of losing $1e6, your expected utility loss is 1e-6 U(-$1e6) < U($1).
Thus, it makes sense to pay $1 to avoid the risk of losing $1e6.
Insurance which pays for high probability, low cost events (e.g., gas for your car, birth control pills) is indeed foolish.
In that case, if you pay a guaranteed -$1, your expected utility loss is U(-$1). If you have a 1e-6 chance of losing $1e6, your expected utility loss is 1e-6 U(-$1e6) < U($1).
Thus, it makes sense to pay $1 to avoid the risk of losing $1e6.
Insurance which pays for high probability, low cost events (e.g., gas for your car, birth control pills) is indeed foolish.
> The assumption is that your utility curve in the lossy region is sublinear
Which makes lottery tickets all the more a bad idea. Not only is the expected return in dollars less than your investment, but thanks to the diminishing marginal utility of money your ten millionth dollar will be worth less than your ten thousandth. Lottery tickets are actually worse than their already crappy EV.
Which makes lottery tickets all the more a bad idea. Not only is the expected return in dollars less than your investment, but thanks to the diminishing marginal utility of money your ten millionth dollar will be worth less than your ten thousandth. Lottery tickets are actually worse than their already crappy EV.
Well, some people hypothesize that your utility can be superlinear in the positive region. Utility = (gain or loss)^3, for example.
Of course, the stats prof says he buys lottery tickets because they are fun. I do something similar - even though the expected gain from video games is precisely $0, I still play them.
Of course, the stats prof says he buys lottery tickets because they are fun. I do something similar - even though the expected gain from video games is precisely $0, I still play them.
An interesting addition to other replies to your comment is that the word "insurance" has come to be thought of as a good, safe thing by people (I'm not saying it shouldn't have).
In blackjack there's a bet called Insurance which you can make if you have blackjack (21 in two cards) and the dealer has an ace. Essentially it's a bet that pays 2-1 if the dealer's second card is a ten/face, the odds of which are 4/13, making this the bet with the worst odds for a player on a blackjack table. But because it's called "insurance", a huge number of people take this bet.
In blackjack there's a bet called Insurance which you can make if you have blackjack (21 in two cards) and the dealer has an ace. Essentially it's a bet that pays 2-1 if the dealer's second card is a ten/face, the odds of which are 4/13, making this the bet with the worst odds for a player on a blackjack table. But because it's called "insurance", a huge number of people take this bet.
> the odds of which are 4/13
Actually slightly lower, 15/49. (The difference is like 0.15%.)
(I mainly mention this because I used to think my odds of drawing to a flush in poker were 1/4 per draw. It took me embarassingly long to realise that I needed to remove the cards I could see from the deck.)
Actually slightly lower, 15/49. (The difference is like 0.15%.)
(I mainly mention this because I used to think my odds of drawing to a flush in poker were 1/4 per draw. It took me embarassingly long to realise that I needed to remove the cards I could see from the deck.)
While you're right that 4/13 is simplistic, 15/49 complicates it without actually making it more accurate. Even if there are no other players, there will always be more than one deck in the shoe (4-8 depending on casino), plus the three cards will never be the first cards out of the shoe - so unless you're counting cards you can't work out the exact odds.
> Even if there are no other players, there will always be more than one deck in the shoe
I hadn't realised this, thanks.
> the three cards will never be the first cards out of the shoe
Does this matter? I'm using a model of "the dealer's other card is equally likely to be any of the cards except the two I have and his face-up one", and it doesn't matter where those three were originally. The model can be improved by counting cards, but it's still strictly (albiet very slightly) more accurate than the model of "the dealer's other card is equally likely to be any of the cards in the deck/shoe".
But perhaps there's something else about Blackjack that I'm not aware of?
I hadn't realised this, thanks.
> the three cards will never be the first cards out of the shoe
Does this matter? I'm using a model of "the dealer's other card is equally likely to be any of the cards except the two I have and his face-up one", and it doesn't matter where those three were originally. The model can be improved by counting cards, but it's still strictly (albiet very slightly) more accurate than the model of "the dealer's other card is equally likely to be any of the cards in the deck/shoe".
But perhaps there's something else about Blackjack that I'm not aware of?
Let's imagine using just one deck. Your odds of 15/49 could easily be 12/45, or 15/20, depending on what cards have come before it.
Well, yes. But if you're not keeping track of that, then always using 15/49 will give you marginally better results, on average, than always using 4/13. Perhaps there will be times where, if you had kept track of the cards, you would give odds of 4/13; but you didn't, so you don't know that's the case, and you should give 15/49.
You're correct about your other objections, and 15/49 is indeed harder to work with - but "without actually making it more accurate" is false under the one-deck assumption. It is not wholly accurate, but it is more accurate.
You're correct about your other objections, and 15/49 is indeed harder to work with - but "without actually making it more accurate" is false under the one-deck assumption. It is not wholly accurate, but it is more accurate.
I think you can classify lottery tickets as investment, wheras insurance is, well, insurance. I don't play the lottery because it's extremely unlikely to make me positive returns. I pay for health insurance because I want to cover the unlikely possibility that I have a serious health problem.
There's also the amortization to consider. Over a lifetime I may lose 50% of what I put in to insurance -- but I don't have 50% of what I'd put into it over my lifetime available to me now if I have a large medical bill to pay.
There's also the amortization to consider. Over a lifetime I may lose 50% of what I put in to insurance -- but I don't have 50% of what I'd put into it over my lifetime available to me now if I have a large medical bill to pay.
"Investment" is traditionally reserved for activity wth positive expected returns compared to baseline behavior.
Unless you can sustain a $100,000-$300,000 loss before you have have paid into the insurance pool more than that amount, it makes sense. If you had gobs of money, then it wouldn't make sense for you to have insurance. (preconditioned on insurance being a profitable business, etc.)
By analogy - if a person thinks "spending $5 has no impact on my life, but winning $10M will", is that really any different from our justification of insurance? (I agree with you - thats the same way I view insurance. Yet I view lottery tickets as silly, but I can't clearly articulate why).
The cumulative impact of a lifetime of spending $5 per week is much less than winning a lottery. Most people can sustain a $5 per week hit, especially if they get the mental benefits described by the parent article.
There are better things to spend $5 on, but it's not a huge deal either way - as long as you stay out of the addictive/compulsive zone.
The losses covered by insurance are very impactful. Most people can't sustain the massive financial hit that comes from, say, their house burning down. It can make sense to lessen their day-to-day quality of life by spending money on insurance, to guard against that massive downside risk.
There are better things to spend $5 on, but it's not a huge deal either way - as long as you stay out of the addictive/compulsive zone.
The losses covered by insurance are very impactful. Most people can't sustain the massive financial hit that comes from, say, their house burning down. It can make sense to lessen their day-to-day quality of life by spending money on insurance, to guard against that massive downside risk.
Hm. Most people collect on insurance for very-sustainable costs - drug benefits, dental for checkups, routine visits to the doctor. Where do those fit into this argument?
Personally, I would like insurance that pays only for large expenses. I know its a sucker game to pay insurance; since the insurance companies profit I must be losing. But 'group insurance' is not something I can change.
Personally, I would like insurance that pays only for large expenses. I know its a sucker game to pay insurance; since the insurance companies profit I must be losing. But 'group insurance' is not something I can change.
When you buy catastrophic insurance it usually comes with free preventative care, which benefits the insurer as well as the insured.
You can often get a lower premium for a higher deductible, and everyone who knows how to multiply does this.
You can often get a lower premium for a higher deductible, and everyone who knows how to multiply does this.
...unless as noted, its group insurance, in which case you take what you get.
Insurance significantly reduces the possible (or significantly likely) variance in a persons financial well-being. This comes at a cost in total wealth that is worth while because it brings the chance that one would vary into territory where the money one has is not enough for basic utility. Insurance on the other hand increases the variance (meaning the slight increase in expected value comes at a cost) at the other end of the spread in a way that does not guarantee any kind of minimal utility. Minimal utility is more important than huge potential diminished returns.
You also have to consider loss aversion which is a well known psychological phenomenon[0]. In a sentence, people fee when tend to strongly prefer avoiding losses to acquiring gains.
[0] http://en.wikipedia.org/wiki/Loss_aversion
[0] http://en.wikipedia.org/wiki/Loss_aversion
It comes down to the utility of money, or roughly speaking, how happy the money will make you. $20,000 is a lot more valuable to someone with $10,000 than someone with $50,000. In other words, having $10,000 is worth, say, 10 utility, having $30,000 is worth 20 utility, and having $50,000 is worth 25 utility.
Starting with $30,000, buying insurance which has a small chance of saving you $20,000 gives you a +10 utility gain if it pays off. Buying a lottery ticket which has an equal chance of giving you $20,000 gives you a +5 utility gain if it pays off.
Starting with $30,000, buying insurance which has a small chance of saving you $20,000 gives you a +10 utility gain if it pays off. Buying a lottery ticket which has an equal chance of giving you $20,000 gives you a +5 utility gain if it pays off.
With insurance, you're already subject to the risk. With lottery you choose it.
The real rational reason for buying lottery Tickets is unfortunately not mentioned.. You may not think of expected return but of a Chance to move up a bracket reg "Standard of Life" which would not be possible by other means.
You wont move down a bracket by buying lottery Tickets (prob not even on a long term) - which makes it perfectly rational to play the lottery for some Kind of people (in the "poorer bracket") in my opinion.
It does mention why he buys tickets: not for the expected return, but for the pleasure of entertainment.
Well it mentions why he 'says' he buys tickets.
>The standard argument of people who think that lotto is for suckers is based on expected return. They are taught at school that a rational investment is one with an expected value greater than the price paid. I have some problems with this argument, but I’ve never really calculated it before, so let us consider the numbers. //
This para to me says he's not really looked before at why he buys tickets, he's certainly not calculated his expected returns even though - as he says - he's a statistician. That seems a bit weird to me, like a mechanic that doesn't check his own oil or something.
So I think he now has a reason to tell people why he buys tickets but that perhaps before [and maybe still] there was some irrationality (humanity you might call it) in there too.
>I’ve also heard the belief that the lottery is a tax on poor people. I have a different view, that buying lottery tickets is perfectly rational for me. //
At the start he says this. And then, like others in this thread, says it's about hope and dreams - that seems contradictory in some sense. It's about hope beyond the mathematically expected financial return? The cost of doing the lottery for me exceeds the entertainment value it provides but the draw of the chance to "solve all my problems" is very strong.
Perhaps not a tax on the poor but a far less easily avoided irrational expense?
Aside: I also like the way he presents his calculation of expected return as if it's going to turn out that the lottery makes an ongoing loss and it's going to show that he was acting rationally all along (although it wouldn't show that of course because you have to have the argument first for the behaviour to be rational, don't you; otherwise it just happens to be coterminous with rational behaviour).
>The standard argument of people who think that lotto is for suckers is based on expected return. They are taught at school that a rational investment is one with an expected value greater than the price paid. I have some problems with this argument, but I’ve never really calculated it before, so let us consider the numbers. //
This para to me says he's not really looked before at why he buys tickets, he's certainly not calculated his expected returns even though - as he says - he's a statistician. That seems a bit weird to me, like a mechanic that doesn't check his own oil or something.
So I think he now has a reason to tell people why he buys tickets but that perhaps before [and maybe still] there was some irrationality (humanity you might call it) in there too.
>I’ve also heard the belief that the lottery is a tax on poor people. I have a different view, that buying lottery tickets is perfectly rational for me. //
At the start he says this. And then, like others in this thread, says it's about hope and dreams - that seems contradictory in some sense. It's about hope beyond the mathematically expected financial return? The cost of doing the lottery for me exceeds the entertainment value it provides but the draw of the chance to "solve all my problems" is very strong.
Perhaps not a tax on the poor but a far less easily avoided irrational expense?
Aside: I also like the way he presents his calculation of expected return as if it's going to turn out that the lottery makes an ongoing loss and it's going to show that he was acting rationally all along (although it wouldn't show that of course because you have to have the argument first for the behaviour to be rational, don't you; otherwise it just happens to be coterminous with rational behaviour).
You must not have got to the end of the article? He doesn't need to have ever figured out the odds before when he was always just buying it for the entertainment value.
>I think of it as a discretionary entertainment spend. I get literally hours of enjoyment from fantasizing what I’d do if I won.
>I think of it as a discretionary entertainment spend. I get literally hours of enjoyment from fantasizing what I’d do if I won.
>You must not [...] //
I'm not sure which part you're responding to there.
If it's that he states the reason as you quote? A point being that he was lured to buy tickets by some other more base desire, yes perhaps an irrational feeling that he would win, but that for a person in his position the admittance of that could be difficult, a personal cost of face.
Kinda like the old saying you buy Penthouse for the articles?
Pure speculation but then his side is self-promoted anecdote so I reckon it's all even. Just shooting my mouth off though probably.
I'm not sure which part you're responding to there.
If it's that he states the reason as you quote? A point being that he was lured to buy tickets by some other more base desire, yes perhaps an irrational feeling that he would win, but that for a person in his position the admittance of that could be difficult, a personal cost of face.
Kinda like the old saying you buy Penthouse for the articles?
Pure speculation but then his side is self-promoted anecdote so I reckon it's all even. Just shooting my mouth off though probably.
There is that Stanford math PhD that won four lotteries. http://www.forbes.com/sites/kiriblakeley/2011/07/21/meet-the...
That's really interesting. Seems pretty obvious she cheated in some way.
If something only happens once every 'quadrillion years' that's pretty much evidence right there, but given all of the other suspicious things as well...ya - I think there is basically no chance those were legit wins.
If something only happens once every 'quadrillion years' that's pretty much evidence right there, but given all of the other suspicious things as well...ya - I think there is basically no chance those were legit wins.
There is a similar story of a Canadian or somewhere that cracked a weakness in the mechanics of a scratch off game (Monty Hall paradox exploited in real life!) for consistent average winnings.
And of course the famous MIT Blackjack team.
Of course, a lottery loves publicity, and they don't care which player wins, so win-win.
And of course the famous MIT Blackjack team.
Of course, a lottery loves publicity, and they don't care which player wins, so win-win.
"The odds against winning the big prize are 45,379,619:1"
I have a hard time imagining how low these odds are but once my math professor gave us an interesting analogy.
One person drives from Los Angeles to Las Vegas and throws a quarter out of the window at any point in time.
You then follow this person along the same route. You win the grand price if you manage to stop your car such that your front wheel stops at the exact same position as the quarter (10cm tolerance).
This image made me never play the lottery.
I have a hard time imagining how low these odds are but once my math professor gave us an interesting analogy.
One person drives from Los Angeles to Las Vegas and throws a quarter out of the window at any point in time.
You then follow this person along the same route. You win the grand price if you manage to stop your car such that your front wheel stops at the exact same position as the quarter (10cm tolerance).
This image made me never play the lottery.
The imagery of this explanation adds to the lottery-aversion on a subconscious level, as well: it reverses how a lottery is usually portrayed. Instead of 'only a dollar' entry cost and 'millions' if you win, this analogy associates entry with a long and costly task (some or most of a cross-country drive) and winning with a single quarter. Clever!
This analogy reinforces why people should and do (incl author) play the lottery. A nice roadtrip through the country, entertainment. If you happen to stop and find a quarter, bonus!
Nice calculation, but it doesn't contradict the 'rational' argument at all. Slightly disappointing: looking at the title and first paragraph I expected some weird statistical wizardry on why the calculation of expected values is fundamentally flawed somehow.
(Which would be surprising, given that it's an important mathematical tool in quantum mechanics (even though the formalism there is different).)
Also, why pay for the privilege of imagining a better outcome? Imagination is >free< and virtually unlimited, surely.
Also, why pay for the privilege of imagining a better outcome? Imagination is >free< and virtually unlimited, surely.
He does contradict the "rational" argument that you should only factor in money when doing your expected value calculations.
> Imagination is >free< and virtually unlimited, surely.
I guess he gets more entertainment out of knowing that what he is imagining has a chance of becoming a reality.
> Imagination is >free< and virtually unlimited, surely.
I guess he gets more entertainment out of knowing that what he is imagining has a chance of becoming a reality.
I just imagine that my dreams can come true! Maybe I bought a ticket yesterday and just forgot! Or my mom secretly bought a ticket for me!
Exactly. I'm entertaining myself every time I release some software and imagine that I'll sell millions of copies :)
Reminds me of a dilbert comic:
http://dilbert.com/strips/comic/2011-02-12/
http://dilbert.com/strips/comic/2011-02-12/
That's not >free< You probably spent many hours writing that software.
No, the dreams are free, as I make software for a living anyway.
The expected value isn't flawed, but it's often not an useful guide to what action you should take. Imagine a lottery with an accumulated jackpot of $11 million, and there's one million $10 tickets (this isn't all that rare). Should you take all your savings and buy 1000 tickets? You have a positive expectation value, and 99.9% chance of ending up penniless. Is one that buys the tickets really a much more rational person than one who does it when the jackpot is $8 million? One can make just positive expectation bets and be certain to lose it all. The Kelly Criterion is a nice little formula for calculating the optimal bet size from the risk and the expectation.
"The expected value isn't flawed, but it's often not an useful guide to what action you should take."
Yeah, I agree with that - if good decisions could be made that easily we'd all be phenomenally successful. There are mountains of complications (both qualitative and quantitative) that must be heaped on top of expected values if they're going to be any use at all in deciding what action to take. Perhaps this was the author's point, but perhaps that's sort of obvious anyway.
Yeah, I agree with that - if good decisions could be made that easily we'd all be phenomenally successful. There are mountains of complications (both qualitative and quantitative) that must be heaped on top of expected values if they're going to be any use at all in deciding what action to take. Perhaps this was the author's point, but perhaps that's sort of obvious anyway.
This is because you're not after money but after welfare (whatever that is).
This boils down to "expected utility != expected value". His expected utility is positive despite the fact that buying lottery tickets does have a negative financial expected value. So yes, buying lottery tickets is perfectly rational for him.
Indeed, this is Von Neumann–Morgenstern rationality for anyone interested: http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern...
Thanks for the reference. I didn't know there was a specific term for that.
Kari Enqvist, a professor of cosmology, said something very insightful in an interview about gambling in general:
"Insurances yield a peace of mind and lotteries yield dreams, the values of which cannot be measured in mere terms of probabilities or money."
In my view, lottery tickets are not meant to be rationally justifiable, nor should they be required to be. Yet, I don't fancy the idea of committing to such vain pursuits comfortable at all, but I can understand people who act upon their dreams, and will not berate those who do.
"Insurances yield a peace of mind and lotteries yield dreams, the values of which cannot be measured in mere terms of probabilities or money."
In my view, lottery tickets are not meant to be rationally justifiable, nor should they be required to be. Yet, I don't fancy the idea of committing to such vain pursuits comfortable at all, but I can understand people who act upon their dreams, and will not berate those who do.
Also, in Finland the state lottery redistributes the profit to good use. By law the arts get 38.5%, sports 25%, science 17.5% and youth work 9%. 10% goes to whatever the Ministry of Education decides that year. Whenever I play lottery I think I'm partly giving money to charity and partly buying a dream.
I bet you would be more effective donating directly to a worthwhile recipent than running through layers of adminstrative overhead.
> the values of which cannot be measured in mere terms of probabilities or money.
Sure they can. I'll pay $X for insurance but I won't pay $Y. Peace of mind is worth somewhere between $X and $Y to me. If I offer someone $Z to never play the lottery again, they'll either take it or not. If they take it, they valued those particular dreams less than $Z. (Unless $Z is high enough to fulfill some of those dreams, but I suspect many people would accept a $Z which is not so high.)
There's no simple trade-off where I'll always accept some number of units of money for some number of units of peace of mind; but the same is true of cars.
Sure they can. I'll pay $X for insurance but I won't pay $Y. Peace of mind is worth somewhere between $X and $Y to me. If I offer someone $Z to never play the lottery again, they'll either take it or not. If they take it, they valued those particular dreams less than $Z. (Unless $Z is high enough to fulfill some of those dreams, but I suspect many people would accept a $Z which is not so high.)
There's no simple trade-off where I'll always accept some number of units of money for some number of units of peace of mind; but the same is true of cars.
Meanwhile, the people who sell you the lottery ticket act completely rationally. Funny---it's still lottery tickets, but when the odds are in your favour the hope is no longer needed.
Interesting that he claims this lottery has positive expected value, but I don't think it's true. He forgot about income tax. This is one of the standard tricks for making lotteries look better (or less bad) than they really are. (The other common trick is paying an annuity instead of money, and advertising its nominal value instead of its actual value, which is substantially greater. This one doesn't seem to be doing that, though).
Funny that he started the article seeming like he was going to show using math that the lottery was a good investment idea, when in fact it isn't according to his own estimation.
As to the entertainment value of dreaming that you've won the lottery, obviously nobody should be told they CAN'T enter. But what some call a dream I call self-delusion. We have a pervasive idea in this country that we're all going to become rich eventually and it's simply not true.
As to the entertainment value of dreaming that you've won the lottery, obviously nobody should be told they CAN'T enter. But what some call a dream I call self-delusion. We have a pervasive idea in this country that we're all going to become rich eventually and it's simply not true.
The main thing to be learned from this post is that the “Super 7’s Oz Lotto” is clearly a badly run lottery. If the expected return for a ticket is greater than the price, this lottery is losing money for the organizers.
Perhaps this explains the glum-looking face on their logo: https://media.tatts.com/images/lotto/tattersalls/site-logo-t...
Perhaps this explains the glum-looking face on their logo: https://media.tatts.com/images/lotto/tattersalls/site-logo-t...
The money is so big because it has rolled over, it has not been won for a while.
It's fine to say I play the lottery because I like to be irrational, but in that case it's a complete red herring to play the I-am-a-statistician card.
I also have a background in statistics (to a degree) and gamble but prefer deep OTM puts to powerball.
With cumulative jackpots, it is indeed possible that the expected returns on some plays are a net positive. But if you just consider lotteries for what they are - a form of entertainment - that doesn't make so much difference...
I would think it would be easier to calculate the payout ratio simply by looking at how much the government kept of the lottery revenue, rather than by calculating the odds.
A mathematically friend who gambles a bit expressed it this way:
"Chances of winning - 1 in <some ridiculously high number> ...I'll play anyway - somebody's got to win."
"Chances of winning - 1 in <some ridiculously high number> ...I'll play anyway - somebody's got to win."
He forgot that lottery can be rigged.
He also forgot about paying taxes in case of winning lottery.
Not sure why he cannot dream about getting rich without playing lottery.
He also forgot about paying taxes in case of winning lottery.
Not sure why he cannot dream about getting rich without playing lottery.
> So why do I still buy lottery tickets? Definitely not for the expected monetary return on investment. I think of it as a discretionary entertainment spend. I get literally hours of enjoyment from fantasizing what I’d do if I won.
Why not spend it on hookers and blow instead? THINK OF ALL THE FUN YOU'LL HAVE. :|
Why not spend it on hookers and blow instead? THINK OF ALL THE FUN YOU'LL HAVE. :|
...because hookers and blow are expensive and have a lower money-to-fun ratio?
And, honestly, I wouldn't actually have fun with hookers and blow. But that's just me.
And, honestly, I wouldn't actually have fun with hookers and blow. But that's just me.
An honest question: Why don't hedge funds buy lottery tickets?
Hedge funds are hedging against (sort of) specific bad things happening. To do this, they buy into an investment that (hopefully ;-) has a [edit] positive correlation to the "bad thing" they are hedging against so that, if the bad thing messes up your primary investment, the hedge investment gains compensate (some of) your losses.
Example: http://money.stackexchange.com/questions/6473/where-should-i...
Since winning the lottery is not correlated at all with something bad happening to an investment firm's investments, it is a very poor hedge against their investments failing to come through.
Example: http://money.stackexchange.com/questions/6473/where-should-i...
Since winning the lottery is not correlated at all with something bad happening to an investment firm's investments, it is a very poor hedge against their investments failing to come through.
Because it wouldn't make them money (expected value) and would probably be against the rules anyway.
Cliffs: he doesn't mind lighting money on fire because he thinks imagining winning the lottery is fun.
He doesn't think imagining winning the lottery is fun, it actually is fun for him. He's actually entertained and is comfortable spending money for a little imaging and escapism.
What's wrong with that?
What's wrong with that?
Lots of illegal drugs are actually fun, too. While they probably shouldn't be illegal, they can easily (much more easily than other things) lead to self-destructive life styles with the user laughing all the way. That's what's wrong with them. Similarly for becoming addicted to gambling, which at least doesn't create a chemical dependency.
Nothing is wrong with that. When I go to Las Vegas, I play craps for the same reason. But I didn't make a massive blog post that implied I could beat craps, get it on page 1 of HN and after 20,000 words and numerous graphs and tables announce to the World that it's ok that I donate some money to Bellagio once a year because it's my money and the waitresses are hot and it's fun. I wouldn't do that because no amount of eloquent prose and statistical evidence is going to change the fact that I just stated the blatantly obvious. That's why everybody gambles.
> get it on page 1 of HN
True fact: not all submissions to HN are by their authors.
True fact: not all submissions to HN are by their authors.
"But I didn't make a massive blog post that implied I could beat craps ..." He implied nothing of the sort, the headline is a good summary of the post. You are annoyed that the post is not what YOU thought it should have been, learn to read.
Less than 1600 words, three tables and one graph.
This is some really sophisticated trolling. Hats off.
/me grabs popcorn.
/me grabs popcorn.
If I ever feel trapped by circumstances, depressed, lost, or I don't have optimism for the future, the less logical part of my brain will somehow rationalise the remote chance of winning millions as a perfectly justified excuse for buying a ticket. The author of this piece is right about how lottery tickets buy you a sense of hope, and prompt you to envision your life being better.
So these days I see it as a sign that something in my life needs to change when I take an active interest in this week's Powerball prizes. It's become a kind of signalling mechanism for my subconscious.