Today we’re going to talk about a question probably all of us have thought about at some point: Can you make money playing the lottery?
So occasionally in the news we see a story about the latest lottery jackpot and how someone becomes a multi-millionaire overnight.
And when this happens we typically get the urge to try our own luck by going out to buy some lottery tickets, only to come away disappointed from not having won anything.
Then we forget about things until the next time a story like that pops up again.
But if you devoted your time and money to “investing” in the lottery, is it actually a good way to make money? Can you actually get rich?
Let’s find out!
To watch a video on this topic, check this out:
Doing the Math
One way we could try to analyze this is to do the math: look at the exact probabilities of winning, which are stated when you buy a lottery ticket, calculate the expected return, and then compare that with the cost of the ticket.
However, every lottery is different in the prizes awarded and there are different chances of winning, so we’d have to do this for a large number of different lotteries in order to come to any sort of generalizable conclusion.
Instead, let’s do some analytical thinking.
Negative Expected Return
We know that many lotteries are primarily used to raise funds, meaning that whoever is running it needs to end up with a profit in the end. Otherwise, what’s the point of running the lottery in the first place? Depending on the size of it, there’s also wages and costs of operation like lottery machines, websites, and so forth that need to be covered.
In the end, its a business, and what this means is that the amount of money paid out to most people who buy into a lottery is going to be less than they paid. It simply has to be, unless the lottery is done as a charity, but those aren’t sustainable so they would only be special one-time events.
So we can conclude that the expected return on the lottery is negative. But so what? Isn’t the same true for insurance, and we still buy that? Besides, with some lotteries, you have a small chance of winning a life-changing amount of money that’s in the millions or even billions of dollars! Isn’t that worth spending a few bucks to see if you can get lucky with something that could turn your life around?
It is absolutely true that there is a small chance that you could win the jackpot and change your life. But that “small chance” is actually far smaller than most people think it is. Research has shown that extremely tiny probabilities are not well understood, and that “people distort probabilities to compensate for perceptual and cognitive limitations”.
It’s the same reason that some people are afraid of flying even though the chances of a commercial airliner crashing are miniscule. When there’s a very small probability at play, we tend to think of it being more likely that it actually is, because its hard for us to really think about such small numbers. The same is actually true for extremely large numbers as well.
To illustrate, let’s take for example the chances of winning the Powerball grand prize, which is 1 in 292,201,338. To put that into perspective, its easiest to look at some things that are more likely to happen to you than winning the Powerball, including:
- Dying from an asteroid strike: 1 in 74,817,414 — Yes, you are more likely to experience an extinction level event than win the Powerball
- Getting murdered during a trip to the Grand Canyon: 1 in 8,156,000 — Extremely specific location, but also quite grisly.
- Becoming a movie star: 1 in 1,505,000 — So you should actually just try to become a movie star instead, since its a lot more likely and you not only get money, but also fame!
- Becoming disabled, disfigured or killed by a parasite: 1 in 7.2 — Wait… what?…. that is actually kind of concerning… maybe we should look into that one a bit more…
But anyways, the point is that if I say “you aren’t going to win the lottery” to the extent that it will completely transform your life, it’s most likely true. And if it isn’t, well, congrats!
Why Play Anyway
Okay, so we’ve established that playing the lottery is NOT a good way to make money. So, does that mean you shouldn’t do it at all?
My general philosophy to spending money is that you’ll want to maximize your long-term happiness and look at what brings you closer to your goals. However, I also believe that we can’t endlessly sacrifice short-term enjoyment, or we’ll simply burn out along the way before we get anywhere close to those goals.
Playing the lottery should be viewed as a potentially fun entertainment activity. By buying a lottery ticket for $2, you get to enjoy thinking and talking for a few days about what you would do with all that money if you won. If that means spending a couple bucks every so often, then so be it, but make sure you consider it part of your entertainment expenses and budget, if you have one.
Personally, I only feel the urge to try my luck when the jackpot gets huge, like past $500 million or so. And even then, I won’t spend more than a few dollars here and there just for fun. Luckily, whenever it gets really big, it seems to pop up in the news so I don’t really have to pay much attention to it otherwise. After someone inevitably ends up winning, I go back to not paying any mind to the lottery.
To conclude, don’t think of playing the lottery as a money making strategy, but as simple entertainment, and make sure to budget accordingly. Absolutely don’t get addicted or put so much money into it that you’ll affect your long-term goals and happiness.
That’s my view. Let me know if you agree or disagree, or if you’ve had great luck with lottery winnings.