Lotto

[cmpnd15]

Didnt we just witness the Mungers Lollapalooza effect ? Lotteries/Games of Chance are immensely popular with people with low income, those dealt a weak hand by life and ignorant (its said lotteries/casinos is a tax on the ignorant). As the lottery pay out rises, more high income people, highly educated people and those who generally consider themselves to be smarter than the rest of the populace tend to play, mathematicians, physicists, engineers, economists, with the pool rising exponentially in the final moments and the longer there is no winner. Reasons probably discussed in books on behavioral sciences, why smart people make dumb mistakes, Predictably Irrational, The Social Animal, Thinking Fast and Slow, etc.. So why did you play ? any one of the below or all of it ? :)

 

. fear of missing/losing out

. utility/cost of dreams/fun for $2 vs disutility of loss of $2

. shame of looking foolish (if colleagues and friends win the pool)

. peer pressure to participate (the social animal)

. rationalizing it despite low odds

[TheAiGuy]

 

I beg to differ:

 

you said the expectation is that I would go broke before I win if I bet $2? how do you know that? can you point me to a proof? I think ya I gotta look into the original paper by kelly, but I didn't think that's what maximum utility function means

 

the reason I say that is suppose i have a bankroll of $1.7 M, and I have a 9/10 chance of going broke....... but 1/10 chance of winning $1B....... do I play or not? expectation is not necessarily the same as odds of winning or going broke......

 

 

 

As you increase your bets over kelly, the growth rate of your capital declines and will eventually become negative.

 

see table 3 in the attached paper. In blackjack, the expected growth rate of your capital is 0 if you bet 2x the kelly criterion, and above that it's negative. Section 4.3 they discuss what the kelly bets for lottery's are (note that these lotteries have much higher win probabilities that Powerball)

2632470.pdf

[Jurgis]

So why did you play ?

 

I did not play this PowerBall, but I can explain why I buy season ticket for lottery.

 

It is pretty much a binary distribution play. My work, savings, investments are high input size, low risk (haha, says a guy who invests in stock market), lowish return, lowish (though high compared to average wealth) ultimate pot size. That's one side of the two hump distribution. This all will lead to some reliable income/wealth result in X years. It will not lead to huge (lottery jackpot size) income/wealth, since I don't expect 20%+ yearly compounding.

 

So then there is the lottery ticket - low input size ($90 per year), very high risk (pretty much no chance to win), very high return (jackpot), very high ultimate pot size (jackpot).

 

It makes sense to me to have both of these at completely different ends of spectrum. Now, if I had something in between and/or if my work/savings/investments could build to jackpot size result in X years, I probably would not buy lottery ticket. Also if the cost of the lottery ticket would be high in comparison to my work/savings/investments, I would not buy it either. But now it makes sense.

 

Or a shorter reason: "If you win, jackpot changes your life" (not necessarily for better though, read up on lottery winners' curse).

 

That's also the reason when I go to Vegas, I bet on progressive jackpot machines. Yes, odds are better on blackjack or whatever (I'm sure there are experts here who will tell what's the best game to play in terms of odds). But I am not interested to win $20. I'm interested to lose $20 asap or win the jackpot.

 

BTW, I would be interested if anyone has thoughts if there is something in between the two humps above. I.e. is there a "gamble" where you can have lowish input size, high risk (but lower than lottery), very high return (below jackpot, but still very high), very high ultimate pot size. Ideas? For fun of course. :)

 

 

 

I am also serious that I consider my lottery season ticket a voluntary tax. It's like charitable donation to my state coffers. Isn't that a good thing? ;)

[rkbabang]

Didnt we just witness the Mungers Lollapalooza effect ? Lotteries/Games of Chance are immensely popular with people with low income, those dealt a weak hand by life and ignorant (its said lotteries/casinos is a tax on the ignorant). As the lottery pay out rises, more high income people, highly educated people and those who generally consider themselves to be smarter than the rest of the populace tend to play, mathematicians, physicists, engineers, economists, with the pool rising exponentially in the final moments and the longer there is no winner. Reasons probably discussed in books on behavioral sciences, why smart people make dumb mistakes, Predictably Irrational, The Social Animal, Thinking Fast and Slow, etc.. So why did you play ? any one of the below or all of it ? :)

 

. fear of missing/losing out

. utility/cost of dreams/fun for $2 vs disutility of loss of $2

. shame of looking foolish (if colleagues and friends win the pool)

. peer pressure to participate (the social animal)

. rationalizing it despite low odds

 

With me it was definitely:

 

. utility/cost of dreams/fun for $2 vs disutility of loss of $2 (as I've already described above)

 

 

. fear of missing/losing out

 

I understand the odds so I would not have any fear that I was losing anything if I didn't play.  After all there are $multi-million jackpots every week, any of which would change my life, yet I never play.

 

. shame of looking foolish (if colleagues and friends win the pool)

 

Again the odds are just as much against your friend or colleagues winning as they are against you winning.  And even if your friend did win, not playing wouldn't make you look foolish, because even if you had played your friend still would have won not you.

 

. peer pressure to participate (the social animal)

 

I'm more embarrassed that I played than proud, I doubt this had anything to do with it.

 

. rationalizing it despite low odds

 

Maybe this one a little bit.  $2 isn't a lot to worry about.  If I lost $2 out of my wallet it wouldn't ruin my day.

 

[rkbabang]

There would definitely be a large downside to wining such a newsworthy jackpot (at least at first).  I would not want my name to be published as the person who won that jackpot.  Not only carrying everywhere I went and escorting my children everywhere they go, I'd be sleeping fully clothed with my Glock in its holster on my belt for the next 6 months.  People get crazy.

 

CROWDS GATHER AT WINNING POWERBALL 7-ELEVEN IN CHINO HILLS, CALIFORNIA

"The California store and its surrounding strip mall immediately became a popular gathering spot in the usually quiet suburb of 75,000 people. Hundreds of people, from news crews to gawkers, crowded the store and spilled into its parking lot."

 

[Pelagic]

Didnt we just witness the Mungers Lollapalooza effect ? Lotteries/Games of Chance are immensely popular with people with low income, those dealt a weak hand by life and ignorant (its said lotteries/casinos is a tax on the ignorant). As the lottery pay out rises, more high income people, highly educated people and those who generally consider themselves to be smarter than the rest of the populace tend to play, mathematicians, physicists, engineers, economists, with the pool rising exponentially in the final moments and the longer there is no winner. Reasons probably discussed in books on behavioral sciences, why smart people make dumb mistakes, Predictably Irrational, The Social Animal, Thinking Fast and Slow, etc.. So why did you play ? any one of the below or all of it ? :)

 

. fear of missing/losing out

. utility/cost of dreams/fun for $2 vs disutility of loss of $2

. shame of looking foolish (if colleagues and friends win the pool)

. peer pressure to participate (the social animal)

. rationalizing it despite low odds

 

Or perhaps people are better at statistics than they realize. Expected value of a ticket for a 40 million jackpot is quite low since the odds of winning remain the same, as the jackpot increases the value of the ticket increases as well to the point where it's close to the $2 of the ticket or even above it whereas lower jackpots offer a worse proposition.

[randomep]

 

I beg to differ:

 

you said the expectation is that I would go broke before I win if I bet $2? how do you know that? can you point me to a proof? I think ya I gotta look into the original paper by kelly, but I didn't think that's what maximum utility function means

 

the reason I say that is suppose i have a bankroll of $1.7 M, and I have a 9/10 chance of going broke....... but 1/10 chance of winning $1B....... do I play or not? expectation is not necessarily the same as odds of winning or going broke......

 

 

 

As you increase your bets over kelly, the growth rate of your capital declines and will eventually become negative.

 

see table 3 in the attached paper. In blackjack, the expected growth rate of your capital is 0 if you bet 2x the kelly criterion, and above that it's negative. Section 4.3 they discuss what the kelly bets for lottery's are (note that these lotteries have much higher win probabilities that Powerball)

 

thanks this is the material I am looking for and ya I see your point in the paper.... but I'll reserve judgement till I read the whole paper.....

 

 

[TheAiGuy]

no problem