There’s an old joke that goes something like this:
In order to raise additional revenue, the government is introducing a National Lottery with a daily grand prize of $50 million. Winners will get $1 annually for 50 million years.
Heh. I smile every time I hear that one.
There’s also an old saw about lotteries being a tax on the stupid. It’s true, too.
The other day I was talking with somebody who said that he recently reduced his weekly tax-deferred retirement plan contributions by $10 so he could begin “investing” in lottery tickets. His reasoning was that his retirement account was no longer growing fast enough to make a difference anyway, so why not take a small chance at becoming a millionaire?
Of course, there are those who insist that you can’t win if you don’t play. That’s certainly true when it comes to lotteries — but just barely.
Lotteries are big business in the United States. Currently, all but six states permit them. In 2020, state lotteries racked up almost $90 billion in sales. That’s a significant increase from 2009, when combined sales were “just” $58 billion.
In reality, lotteries are arguably the worst “investment” anybody can make; the big question is why they continue to be so popular, given the nearly insurmountable odds that players are up against.
Let’s look at the odds for Powerball, which is currently played across 44 US states, the District of Columbia, Puerto Rico and the US Virgin Islands.
There are 69 white balls, from which five are drawn. There are also 26 red balls, from which a single ball is drawn.
Powerball advertises that players can win in one of nine ways — and the overall odds of winning any prize are a fairly reasonable 1 in 25.
Sounds good so far, doesn’t it?
Well … here are your actual chances of winning each prize:
- Grand Prize (5 white balls/1 red ball) – 1 in 292 million
- $1,000,000 (5 white / 0 red) – 1 in 11.6 million
- $50,000 (4 white / 1 red) – 1 in 913,129
- $100 (4 white / 0 red) – 1 in 36,525
- $100 (3 white / 1 red) – 1 in 14,494
- $7 (3 white / 0 red) – 1 in 579
- $7 (2 white / 1 red) – 1 in 701
- $4 (1 white / 1 red) – 1 in 91
- $4 (0 white / 1 red) – 1 in 38
Based upon those numbers, anybody who regularly plays the lottery clearly doesn’t understand the sheer magnitude of the odds that they must overcome in order to win even enough to cover a luxury vacation.
Either that or they have too much money to begin with, don’t ya think?
For example, consider these odds:
- Being dealt a royal flush on an opening hand of poker (1 in 649,739)
- Being struck by lightning in your lifetime (1 in 30,000)
- Dying in a car accident (1 in 18,585)
- Getting a hole-in-one (1 in 5,000)
- Being audited by the IRS (1 in 100)
Comparing the numbers, one can see that Powerball players have only a slightly better chance of winning $100 than dying in a car accident. They also have practically the same odds of being audited by the IRS than winning $4 — although, one could also argue that any Powerball winner who takes home the Grand Prize has an almost 100% chance of being audited.
Here’s the bottom line: The chance of a lightning strike ruining your day is 1 in 30,000. Meanwhile, the chance of becoming filthy rich playing Powerball is 1 in 292 million.
So while it’s true that you can’t win the lottery if you don’t play, it’s also true that, with such horrific odds, it’s much more realistic to say that those who don’t play the lottery can’t lose.
Photo Credit: Newsmax
We have a national lottery here in the UK, and when I was working in an office they played a syndicate – every player in the office, except me! They would constantly hassle me telling me I couldn’t win if I didn’t “play” etc. just as you say above, but I’m a poker player so I understand odds. So what I started doing was filling out a fake lottery ticket each week – each week they would pick their numbers and play, and I would pick my numbers and NOT play – they had the odd very small win but lost almost every week, I pocketed my ticket price every week 😉
I know people who do the same thing, Billy. The odds are completely irrelevant to them! Those are details that only get in the way of “the dream.”
This really is the ‘stupid tax’. The odds of winning the lottery are not worth the money spent, but people continue to buy tickets. It is just human nature to dream and try to live that dream, no matter the cost.
I spend $6 per week on Lotto. I know the odds, and I know I’m losing about $300 a year but is money I feel comfortable losing. I stick to it and do not play any other type of lottery. Like I said before I know the odds but I still play because for me is more a form of entertainment Is like playing in the casinos, you should only play an amount you are comfortable losing as long as you see it as a form of entertainment.
This is my take on it. It’s entertainment. Everyone has different ways to spend their money that brings a little joy and fun to their lives. The lottery is no dumber than spending $30 on a movie that you can watch on demand in another month and snacks you can buy at the grocery store for less than $5. It’s not the end result, but the experience of it.
Spend only what you’re comfortable losing, have some fun, and maybe get lucky. It’s only stupid if you can’t afford it, actually consider it a legitimate retirement plan, and don’t really enjoy playing. Even then, I feel it’s less “stupid” and more a psychological issue.
I understand the statistics, but the bottom line is somebody DOES win it. I play maybe 10 times per year when the powerball gets above 100 million and I buy 2 or 3 tickets. Do I expect, or really even hope, to win? Absolutely not. But, what I’m buying for that dollar is a small dream, a little shot at the big prize. Small price to pay for dreams.
You’re absolutely right, Brian. Even I’ll buy one ticket on rare occasions when the jackpot is really huge — like $300 million or more. I know I’m throwing my money away, but the dream is fun, if fleeting. The problem is, many many people don’t understand that and truly believe they have a reasonable shot at success.
The upfront cost is low and the payout very high. The chance of winning is bad, true, but with such a low upfront cost it really isn’t that terrible of a gamble. I lose $10 every once in a while when the jackpot is big? Oh well, not like I bet with a lot of money.
Hi, you are right a lot of people really and truly believe they have a reasonable shot at winning.
“You can’t win if you don’t play.”
While technically true, playing doesn’t materially increase your odds of winning.
I play the lottery under two circumstances:
— If a group is playing I’ll go along as part of the cost of belonging to the group –family, co-workers, etc.
— If I’m hosting certain sorts of events I’ll give out scratchers as party favors. For instance when I took my work team out for a meal at Christmas time I’d give each person a scratcher.
I’ve been known to give out scratchers at Christmas too, Dorothy.
Well I sure hope people will quit playing the Powerball soon. If those figures are correct, that means 9,733 people are getting electrocuted every time someone wins it! That should leave a mark.
That’s a revolting thought, James!
Agree fully. Kahnemann’s book Thinking Fast and Slow (my most favorite book to date) explains this very well. People overestimate the unlikelihood of rare events and underestimate the likelihood of high probability events.
And of course, Freaknomics did this “No Lose Lottery” or “Prize Linked Savings”. It was an amazing episode. Anybody who loves the thrill of winning should support it as you gamble with zero risk (or as low risk as the interest you get from your checking account …. which is zero … eh?)
Another ‘Siren-Song Sink” for your money: Publisher’s Clearing House.
Useful information. Thanks, Len.
A few days ago I also bought a lottery ticket.
Did you win?
I disagree, but I respect what you’ve done here. Good post, Len.
A team at MIT famously gamed the Massachusetts state lottery when they determined that there were times when the lottery paid off at more than 100% due to previous unclaimed jackpots being rolled over into the next draw. They filled out 700,000 betting slips by hand and made nearly a million dollars in a single week, not by luck but by simple math/statistics. That particular lottery game was discontinued when the perfectly legal strategy was disclosed by the players.
Love it! Card counters get the boot in casinos too – not because it is illegal, but because they only want to play when the odds are stacked against their customers.
I played the fridge lottery this weekend. I won back 5 pounds. waaaa