Friday, March 30, 2012
Mega Millions Lottery
The Mega Millions lottery is being drawn tonight for a record(?) 500-600 million. Most people say that playing the lottery is a tax on the stupid. But ignoring the life-changing effects of winning which could cause utility changes in excess of the dollar amount, the expectation is not always negative. By the numbers, you have a 1 in 175,711,536 chance of picking the winning numbers tonight. Without taking taxes into effect, your expected return if you played today (assuming 540 M jackpot) is (1/175,711,536)*539,999,999 + (175,711,535/175,711,536)*-1 = 2.0732. Actually favorable odds, although the actual after-tax, lump-sum option is considerable lower. Regardless, I will still buy my (one) ticket - you never know.
UPDATE: the winner actually had to share the prize with several others, so I guess you would need to factor that into your calculation on these big prizes.