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.

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