It’s a little more complicated. Taking it at face value and ignoring taxes/lump sum/etc. Megamillions currently has a positive expected return because there are approximately 302,000,000 combinations at a cost of $604,000,000 which is less than the current jackpot of $642,000,000. Where it gets more interesting is that only the jackpot is split up amongst multiple winners. If say 1,000 people happen to hit 2nd prize which pays $1 million, the lottery would need to pony up $1 billion in addition to the potential jackpot. Although I am not 100% sure how this affects the long term expected returns as there aren’t winners for every single drawing and I’m also sure that the the lottery companies have insurance in place to protect themselves in this type of situation.White Coat Investor wrote: ↑Tue Oct 16, 2018 7:55 pmNo it's not. It's negative. Half the money goes to the states, so your expected return on $1 is $0.50. You expect a 50% loss. If you bought all the tickets, that's what you'd get.
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Last edited by Jags4186 on Tue Oct 16, 2018 8:10 pm, edited 1 time in total.
Why so serious, it’s entertainment go buy the tickets. This thread inspired me to go buy $20 in lottery tickets as I drink $20 worth of microbrew beer.
I suggest that investing(?) in a large Powerball jackpot is a poor bet. Here's why:
Let's say you spend $10 and your chance of winning a $1Billion pot is one in 2 Billion. Not good.
Let's say you spend $10 and your chance of winning a $1 Million pot is 1,000 times greater. Not good but much better.
Isn't it enough to win $1 Million and have a much greater chance of winning?
Gambling is for losers. Both in the casino and in investing.
Last edited by Taylor Larimore on Tue Oct 16, 2018 8:20 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle
This is a linguistic discussion that I’d like to weigh in on. Using the average of possible outcomes is a common definition for expected return, but it is not the only reasonable definition. The lottery is a much deffferent financial vehicle and may require an out of the box definition. Especially for a single prize lottery the mode seems like a great way to define expected return coupled with the likelihood of getting the mode value (999999 in 1000000). Since most investors are buying substantially fewer tickets than the total available, the mode value describes a typical outcome and is a great definition for expected return.software wrote: ↑Tue Oct 16, 2018 7:29 pmI understand what you are saying David, but I think you are confusing most probable return with “expected return”, which has a specific definition.phitchow wrote: ↑Tue Oct 16, 2018 6:51 pmMedian and mode are not relevant to calculating the expected return. Expected return is defined as the weighted average of all possible outcomes. The formula for the expected return on a Mega Millions ticket is shown in this article under the heading "Putting it all together." To use the formula, you would have to estimate the number of tickets sold.Jags4186 wrote: ↑Tue Oct 16, 2018 6:11 pmMode and median are not the same as expected return. We all know the lottery is a loser, but mode and mean could both be zero in a situation where in a 100 lot drawing the payouts could be 51 $0 payouts and 49 $1,000,000 payouts. I’d bet $1 for those odds...David Jay wrote: ↑Tue Oct 16, 2018 5:45 pmWhich, I believe, means that the mode is zero and the median is zero.Jags4186 wrote: ↑Tue Oct 16, 2018 5:14 pm
https://dqydj.com/mega-millions-expecte ... alculator/
You have a 1 in 24 chance of winning something. Minimum return on a win is 100% (lowest payout on a $1 ticket is $2). Of course expected return is >0 but must be <1 otherwise the state would be losing money. If expected return was 0 no one would ever win anything.
Also I learned today Megamillions is now a $2 ticket
I used to participate since I didn’t want to be the last person in the department when everyone else quit.
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