It's Simple Math... For Some

The past week in math class we learned about probability, and I noticed many of the problems addressed the concept of expected value. Expected value is the margin of profit in any given game.  As I began to solve many of the problems, I calculated the odds of winning the lottery (By the way, I wouldn't recommend participating). As I suspected, the old adage was true, "the lottery is a tax on people who are bad at math". This article gives some background about the probabilities of winning and why people play in the lottery.

Mathematically speaking, the odds of winning the Powerball are one in 175,200,000. To put this in perspective, "you're more likely to die from a bee string (one in 6.1 million) or be struck by lightning (one in 3 million)"! The average Powerball jackpot is $95 million and the average cost of a ticket is $2. I calculated that the expected value from purchasing each ticket is -$1.46. This means if someone bought one ticket everyday for 10 years, like many people do, they would lose $5320.83 on average with still only a .0021% chance of winning the jackpot over the 10 years.

So why do people buy lottery tickets? They could be behind on payments, have family tragedies, or be unemployed. Alternatively, maybe people play these games because of the hope that money buys happiness. For that one lucky winner, their life is changed forever. People love the chance to win, a clear American value. This parallels to an era we discussed in class, when the British traveled to America to start anew in the 1600s. Many took risks in search of riches or freedom. Even 400 years later, risk taking is an important component of the American identity. People will do anything to change their life forever, even if it is completely irrational. If I went up to someone and said, "would you throw away $532.90 a year?" they would think I was crazy. However, if I said, "do you want to buy a lottery ticket with the chance of winning $95 million?", most people would accept.

In reality, I'm basically asking the same question. So why do people fall for lottery trickery? I think the lottery does a great job advertising to those most likely to purchase tickets. They are convincing these vulnerable people that this is their chance to get out of debt, become rich, etc. Unfortunately many of the lottery players do not realize how slim their chances are of winning. And even if they did know the odds, I suspect many people would continue to buy lottery tickets.

Why do you think the lottery has grown into a multi-million dollar business? And why do you think people buy lottery tickets? Feel free to leave comments below.