Sunday, January 10, 2016

Okay, let's talk about this Powerball thing

So, I've long held the belief (and shared it with those that will listen) that lotteries are taxes that you pay for being really bad at math.

If you decent understanding of combinations and large numbers you understand why these lotteries are just money thrown away but more on that later.

This was the plan....
The billion dollar jackpot has been in the works for a few years but it's probably come faster than the lotto officials could have hoped.  Back in October of 2015, the Powerball group made a substantial change to the game in order to fight falling sales.  The hope was by reducing your odds, there would be more jackpot rollovers and thus, more photos of mile long lines of people waiting hours to give away their money.

Here's how they accomplished that goal - by increasing the number of balls in the first bin from 59 to 69 they reduced your likelihood of matching those first five numbers from roughly 1 in 5 million to 1 in 11.2 million.  That's huge cut in your odds, yet oddly (pun intended) the price for a ticket remained $2.  Now, they tried to make everyone feel better by saying "Yes, but we also cut the number of Red Powerballs from 35 to 29".  This is true, so in total your odds of winning the Powerball jackpot went from roughly 1 in 175 million in October 2015 to 1 in 292 million today.  Again a massive reduction in your overall odds in favor of building larger jackpots to drive more media coverage and more sales.

So should I skip it....
For the sake of argument I'm going to assume you live in NY and take the lump sum payout so we're not talking $1.3 billion (which I guarantee will be higher) but something in the neighborhood of $530 million.

We're talking round numbers but let's discuss the term "expected value".  When you buy a $2 ticket you multiply the payout - $530 million x your odds (1/292,201,338) to yield the expected value of your $2 investment.  In this case it equals $1.81 which is about as close to being worthwhile as you'll ever see.  So go ahead and buy your ticket, I'll let it slide this time.

If I can figure out a way to purchase a ticket through an Irish LLC that will shelter my money from taxes like Apple does maybe I'll buy one as well.  If I win I promise to put the proceeds into math education and fighting the Powerball media hype machine through lottery literacy programs :)


Kevyn Ayers said...

In Australian PowerBall you have higher chances to win a jackpot and prizes are taxe free! Thats why I try to predict Australian lotto results!

Morgan Gavin said...

I like your idea of investing the lottery winning in math education. I'd do the same if I were lucky. We have to close the knowledge gap you talked about, for too many people buy into it. icelotto review