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FINDING GOOD BETS IN THE LOTTERY, AND WHY YOU SHOULDN'T TAKE THEM
 

Summary: FINDING GOOD BETS IN THE LOTTERY,
AND WHY YOU SHOULDN'T TAKE THEM
AARON ABRAMS AND SKIP GARIBALDI
Abstract. Should you invest in the lottery? The recent Mega Millions
and Powerball lottery jackpots of more than $300 million have made us
wonder: When, if ever, is it a good idea to buy lottery tickets? Some
lottery drawings do indeed have a positive rate of return. We use a little
elementary calculus to give general criteria for lotteries to have positive
or negative rates of return. We then use a little economic theory to show
that buying lottery tickets is generally not a good investment, even when
the rate of return is spectacularly good.
Everybody knows that the lottery is a bad investment.
But do you know why? How do you know? For most lotteries, the obvious
answer is obviously correct: lottery operators are running a business, and
we can assume they have set up the game so that they make money. If they
make money, they must be paying out less than they are taking in; so on
average, the ticket buyer loses money. This reasoning applies, for example,
to the policy games formerly run by organized crime described in [13] and
[11], and to the (essentially identical) Cash 3 and Cash 4 games currently
offered in the state of Georgia, where the authors reside. This reasoning

  

Source: Abrams, Aaron - Department of Mathematics and Computer Science, Emory University

 

Collections: Mathematics