I know everybody is probably sick of hearing that the lotto is a tax on people who are bad at math, but it’s far more deceptive than just a complicated expected value equation. Powerball and Mega Millions advertising the sum total of a thirty year annuity as the value of the jackpot is simply a lie. It is false. No, the Powerball is not $248 million dollars. That’s literally not what the value of the jackpot is worth.
Advertisements are prohibited from being deceptive because people are gullible. If you were selling jars of tomato sauce, and when people opened them up, they find a bunch of tomato seeds, that would be less of a lie than the current promotion for lotto tickets. You wouldn’t be able to say “well, everyone knows that the jars don’t have the sauce yet. Eventually, the tomatoes will grow and you can make sauce with them, or we can plant them for you and send you a few tablespoons of sauce every year.” You’d be laughed out of court and right into jail, because that’s fraud.
You could still have the lotto without the fraud. It would still be a tax on people bad at math. $70 million dollars is functionally equivalent to $248 million, in that it’s enough money to change your life forever. People could still purchase the dream of a better life for $2 each, and most of the same people still would because gambling is an addiction. You could be completely honest about how unfair the game is, and people would still happily play.
And that’s what bugs me about it. It’s so unnecessary. No other casino or gambling establishment could get away with something so transparently dishonest, and they don’t have to while still making money hand over fist.
Your lottery is like that. Many places, the winnings are tax free and not an annuity. Look at Euromillions in the eu, Australian litter and national lotteries in Europe.
Good point. I’ll amend my rant to reflect that I’m talking about the US lotteries.
I’ve never played, is the ad saying it’s $248 million*, with the asterisk explained in small print to mean “as an annuity”? And a straight payment lump-sum would be 70 mil?
Yes, it’s an annuity over 30 years. Currently the jackpot is advertised as $248 million, and the lump sum is advertised as $112 million. You won’t get either of those because of taxes, so your actual take home is less than $70 million. Some might argue that you shouldn’t exclude taxes, but in this case the house is the government. If a casino advertised favorable odds, but then kept some of your winnings, those wouldn’t be the actual odds.
It all sounds like pipe dreaming about more money than anyone needs, but there is a very real fraud. The true value of the jackpot is important because it determines the expected value of a bet. The chances of winning the Powerball jackpot are exceptionally small, but people play because $2 worth of hope is worth it if you get to spend the afternoon imagining what you would name your boat.
To calculate expected value, you take the odds of winning times the value of the win. If a casino offered a coin flip game with pure 50/50 odds, and paid double your bet, then a $1 bet would be worth $2 half the time. Your expected value of that bet would then be $2 x 50% = $1. This would be a perfectly fair game. None of the casino games or sports bets are ever perfectly fair, because the unfairness is where all the profits come from.
Compare it to roulette, where you can bet on red or black, even or odd, and those bets typically pay double. Sounds fair, until you notice that the wheel has 0 and 00 spaces which are neither red nor black, not even or odd. So your odds of winning a bet on red is only 47.37%, so your $1 bet has an expected value of $0.9474.
The difference between your bet and the expected value is called the house edge, and it’s how casinos make money. Over the long run, each dollar bet on red or black, even or odd earns the casino a little more than 5 cents. That 5 cents on each dollar keeps the lights on and the buffet cheap. Gaming regulations limit the house edge on games, and regulators monitor the slot machines to ensure they pay off frequently enough to be close enough to fair. Casinos caught with games that are very unfair are fined, because gamblers don’t make rational decisions and a large house edge is considered predatory. Most of the money comes in through slots because it’s easiest to obscure the house edge and distract gamblers from recognizing how unfair each game is.
Interesting tangent, card counting teams can shift the house edge in blackjack from roughly 2% to -1%, and they managed to make fortunes selling books and making movies about that tiny shift in expected value. Successful teams could earn a few hundred thousand dollars if they are clever and well funded. Card counting is not illegal, but a casino will break your kneecaps if you win because you were counting cards, and we’re still only talking about changing your odds by less than a single percent.
For the lotto, the expected value includes all of the lower prizes, but those payouts are very far from fair. Getting the powerball correct has a 1 in 38 chance of happening, but only pays double your money. None of the lower prizes pay anywhere close to the odds of winning. The expected value on a $2 ticket for the lower prizes is only $0.32, for a ridiculous house edge of 84%. Of course, the jackpot is supposed to be the big draw and pays out the most. And since it’s a progressive jackpot, it gets bigger and bigger until someone wins. Most people wait for big jackpots to buy tickets, because they sort of understand that the expected value of a big jackpot offsets the very low odds of winning.
1 in 292 million. That’s your chance of winning the powerball jackpot.
Now, you might think that a jackpot of $292 million would more or less even the odds, and we’re almost there, right? Certainly we’re in the casino house edge territory.
Except a ticket costs $2. To make the game roughly fair, the jackpot would need to pay $490 million.
Which still sounds like a ridiculous amount of real money, but jackpots get that big pretty often, right? Seems like every few months, when you start seeing it on the news and people are lining up for the big $500 million jackpot tickets.
And this is where the fraud comes in. Because it’s not a $500 million jackpot. It’s an advertised $500 million jackpot. To actually get paid $490 million on a jackpot win, the advertised jackpot would need to be $1.7 billion. It’s only ever gotten that high twice.
And the kicker? The expected value never reaches the full $2! Because guess what? At that level, the number of tickets sold increase the chances of there being multiple winners. Bigger jackpots sell more tickets, and you actually end up with a better chance of splitting the jackpot 2 or 3 ways than you have of winning outright. The house can never lose, because the game has never been even remotely close to fair.
Remember the card counting potential 1% shift in your favor that would get your legs broken at the casino? Advertising annuity payments creates a house edge disparity of more than 350% between what the advertised jackpot and the actual value of the jackpot. That’s 350% more profit just from the fraud. That’s not even the mathematical house edge built into the game. That’s just money they make from lying to people about the size of the jackpot. 350% shift in the advantage, in a game that was already unfair.
Well explained.
I completely agree the government then keeping a major chunk is wrong. But then it’s government, when doesn’t it wield it’s power for it’s own interest? (Yes, that’s thick with cynicism).
It’s always been a tax on people who can’t do math. Or more accurately, don’t understand statistics and/or are gambling addicts.
If you want to throw $5 at a Powerball for the hell of it, eh. Otherwise, unless you have an addiction and need help, I’ve got no sympathy for anyone playing the math tax.
i’v heard the casinos and lotteries are struggling now, cause the stock market (the original US-casino) is more accessible than ever
never bothered looking into whether that was true or not, just parroting
I mean traditionally the stock market is gambling up to a certain point, after which it becomes a way for the rich to continue getting richer without having to work. You have to make enough money to be able to buy extremely stable investments (like commodities and government bonds) with low dividends in enough volume to just get noticably richer, along with a diverse spread of low to moderate risk to help push the numbers up. The problem is that the initial investments need to be high to do all that.
nah, the stock market was literally started as a casino for rich people. Basically just a way for old money to steal $ from new money.
the point though is…once you realize/understand it’s not a game of chance, that the odds are not 50/50…making $ is incredibly easy. beating 10-15% a year with minimal risk is childs play. there are scaling issues past a certain point, first wall is 100k (when you can get approved for port-margin) after that it’s first million or 2, eventually you start getting reporting requirements and shit, needing to call your broker to make moves etc.
in fact, for those in the know there’s this little game they play where they try and see how far they can take the least amount of money. just as a challenge and to “keep their instincts sharp”. starting with 10-50$'s and seeing how far they can take it.
due to how US markets are (un)regulated compared to the rest of the worlds, the people being milked are pensioners and whatnot buying into the casino mindlessly with each paycheck. seriously, just look at the european market in particular…there’s a reason it isnt nearly as “exciting” as the US’s or Japan’s. they care more about long-term sustainability than incentiving speculation (ie. gambling) like when something gets accepted into the sp500…that’s “time to dump on the zombies/npc’s”. it makes zero sense to buy some <1% dividend from a company trading at 1-200pe but there are loads of those in the big indexes during everything bubbles like this.
everyone in government long-term knows this, especially every republican…that’s why they’re trying to crash the economy. boom and bust “investing” has been turned into a science, in america. they’re just trying to “increase volatility/liquidity” by abusing their positions of power to trigger panic selling/unnecessary hedging.
there’s an old book called Reminiscences of a Stock Operator that lays it out very well, was written over a century ago. it’s kind of like Wolf of Wallstreet, a tongue in cheek behind-the-curtain look at just how corrupt this whole fucking system we’ve built is.
like…i’m not even really an expert at this, no formal training, didn’t go to a business school or anything like that. but with rudimentary understanding of how the
marketcasino actually operates i’m up like 5000% just this last year. have made more the last 3 months than i made the last 3 years working a job…absolutely insane…and i’m not even doing risky stuff like shorting anything, just buying low and selling high.a “crash” is basically when the people like myself, who know how it all works, take $ oit of the system and don’t put it back in (or atleast, don’t put it back in mindlessly).