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I am a statistician and I buy lottery tickets

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Re: I am a statistician and I buy lottery tickets

#41

Post by hdivider »

kryptiskt wrote: post #15
hdivider wrote: post #2

Nice calculation, but it doesn't contradict the 'rational' argument at all. Slightly disappointing: looking at the title and first paragraph I expected some weird statistical wizardry on why the calculation of expected values is fundamentally flawed somehow. (Which would be surprising, given that it's an important mathematical tool in quantum mechanics (even though the formalism there is different).) Also, why pay fo…

The expected value isn't flawed, but it's often not an useful guide to what action you should take. Imagine a lottery with an accumulated jackpot of $11 million, and there's one million $10 tickets (this isn't all that rare). Should you take all your savings and buy 1000 tickets? You have a positive expectation value, and 99.9% chance of ending up penniless. Is one that buys the tickets really a much more rational pe…

"The expected value isn't flawed, but it's often not an useful guide to what action you should take."

Yeah, I agree with that - if good decisions could be made that easily we'd all be phenomenally successful. There are mountains of complications (both qualitative and quantitative) that must be heaped on top of expected values if they're going to be any use at all in deciding what action to take. Perhaps this was the author's point, but perhaps that's sort of obvious anyway.

Re: I am a statistician and I buy lottery tickets

#42

Post by corin_ »

paulsutter wrote: post #16

Insurance has an interesting comparison to lottery tickets. In a lottery ticket, the expected return is usually about 50%. Which is exactly the same as insurance (the premium is about double the expected payout). Yet people regard insurance as prudent, and lottery tickets as foolish. Me included (as long as its a risk you cant easily cover). But our explanation, that "Lottery tickets are foolish because they have a n…

An interesting addition to other replies to your comment is that the word "insurance" has come to be thought of as a good, safe thing by people (I'm not saying it shouldn't have).

In blackjack there's a bet called Insurance which you can make if you have blackjack (21 in two cards) and the dealer has an ace. Essentially it's a bet that pays 2-1 if the dealer's second card is a ten/face, the odds of which are 4/13, making this the bet with the worst odds for a player on a blackjack table. But because it's called "insurance", a huge number of people take this bet.

Re: I am a statistician and I buy lottery tickets

#43

Post by [deleted] »

muppetman wrote: post #20
brianwillis wrote: post #11

Looking back, there seems to be a correlation between the times in my life when I've bought lottery tickets, and the times in my life when I've felt hopeless. If I ever feel trapped by circumstances, depressed, lost, or I don't have optimism for the future, the less logical part of my brain will somehow rationalise the remote chance of winning millions as a perfectly justified excuse for buying a ticket. The author o…

That's a very interesting view point/experience. For me, it's been the opposite. If I'm really happy, feel a bit like I'm on top of my fiances for this fortnight, I'll "splash out" and buy a Powerball ticket. If I'm down, the idea of giving away money on such a silly endeavour seems stupid. Anyway, here's hoping you don't buy too many powerball tickets in the immediate future!

[deleted]

Re: I am a statistician and I buy lottery tickets

#44

Post by aes256 »

brazzy wrote: post #23
paulsutter wrote: post #16

Insurance has an interesting comparison to lottery tickets. In a lottery ticket, the expected return is usually about 50%. Which is exactly the same as insurance (the premium is about double the expected payout). Yet people regard insurance as prudent, and lottery tickets as foolish. Me included (as long as its a risk you cant easily cover). But our explanation, that "Lottery tickets are foolish because they have a n…

The difference is that insurance is not about the expected return at all - it's about managing risk. The "payout" from insurance is tied to events that can happen whether or not you have insurance , and which would ruin you financially without it. The expected payout from insurance is only relevant when the above does not hold, i.e. you have enough liquid funds to cover the loss against which you're insured. A good e…

Indeed. Also, most people are risk averse, so they are happy to purchase insurance with an EV (expected value) equal to less than the premium simply to avoid the gamble.

Re: I am a statistician and I buy lottery tickets

#45

Post by aes256 »

michaelt wrote: post #40
paulsutter wrote: post #16

Insurance has an interesting comparison to lottery tickets. In a lottery ticket, the expected return is usually about 50%. Which is exactly the same as insurance (the premium is about double the expected payout). Yet people regard insurance as prudent, and lottery tickets as foolish. Me included (as long as its a risk you cant easily cover). But our explanation, that "Lottery tickets are foolish because they have a n…

But our explanation, that "Lottery tickets are foolish because they have a negative expected return" isn't exactly credible if we think insurance is a good deal. It's my experience that if you offer homeowners the opportunity to gamble all their properties, double-or-nothing on a gamble biased 60:40 in their favor, no-one will take you up on that. Even though the gamble has a positive expected value. My theory is the…

Alternatively, this is just more evidence that most people are risk-averse.

Re: I am a statistician and I buy lottery tickets

#46

Post by lotto »

I won the UK National Lottery jackpot as part of a syndicate. Two years later, I won it again on my own.

The wins have had two effects on how I evaluate odds: first, so-called 'remote' probabilities I once found reassuring – the odds of being hit by lightning in your lifetime is 1 in 10,000 or the chances of being killed in a train crash are 1 in 500,000 – no longer have a calming effect. This can make me both nervous and acutely risk-aware. Some people call this introverted.

Second, the converse has also become true: so-called 'impossible' odds – the chance of winning the National Lottery jackpot three times, for example – no longer deter me from participating. This can make me both irrational and actively risk-seeking. Some people call this extroverted.

Regardless of this dichotomy, the OP's point of view rings true for me: the decision to play the lottery lies in entertainment value alone. It is unlikely that I will win again. But it is hard to resist the questions hammered out in lottery marketing campaigns. The ones designed to undermine rational resistance to extraordinary odds: "What would you do if you did win?" or, more bluntly, "How would you spend it?"

It is harder still to resist simple cost-benefit analysis, which leaves the same question I've had since the beginning: is dreaming worth the cost of entry? My answer is always the same:

You bet it is.

Re: I am a statistician and I buy lottery tickets

#47

Post by aes256 »

olalonde wrote: post #13

This boils down to "expected utility != expected value". His expected utility is positive despite the fact that buying lottery tickets does have a negative financial expected value. So yes, buying lottery tickets is perfectly rational for him .

Indeed, this is Von Neumann–Morgenstern rationality for anyone interested: http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern...

Re: I am a statistician and I buy lottery tickets

#48

Post by weinzierl »

wilfra wrote: post #30
MichaelApproved wrote: post #9

Earlier quoted context omitted.

He doesn't think imagining winning the lottery is fun, it actually is fun for him. He's actually entertained and is comfortable spending money for a little imaging and escapism. What's wrong with that?

Nothing is wrong with that. When I go to Las Vegas, I play craps for the same reason. But I didn't make a massive blog post that implied I could beat craps, get it on page 1 of HN and after 20,000 words and numerous graphs and tables announce to the World that it's ok that I donate some money to Bellagio once a year because it's my money and the waitresses are hot and it's fun. I wouldn't do that because no amount of…

Less than 1600 words, three tables and one graph.

Re: I am a statistician and I buy lottery tickets

#49

Post by rvkennedy »

The main thing to be learned from this post is that the “Super 7’s Oz Lotto” is clearly a badly run lottery. If the expected return for a ticket is greater than the price, this lottery is losing money for the organizers.

Perhaps this explains the glum-looking face on their logo: https://media.tatts.com/images/lotto/tattersalls/site-logo-t...

Re: I am a statistician and I buy lottery tickets

#50

Post by olalonde »

aes256 wrote: post #47
olalonde wrote: post #13

This boils down to "expected utility != expected value". His expected utility is positive despite the fact that buying lottery tickets does have a negative financial expected value. So yes, buying lottery tickets is perfectly rational for him .

Indeed, this is Von Neumann–Morgenstern rationality for anyone interested: http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern...

Thanks for the reference. I didn't know there was a specific term for that.
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