“A Lottery is a way to tax people who never learned math.”
Calculation by a public school graduate with a degree in liberal arts working as a waiter at TGI Friday and plans to vote for Hillary.
Calculation by a person whose parents cared about their education, has a degree in a STEM subject, and will not be voting for Hillary.
A lottery is taxation of the stupid. And it’s a simple, fair, flat-rate tax; the more stupid you are, the more you pay.
by Karl Denninger
The Reality of Powerball
Yes, mathematically it looks good to buy a ticket for a $1.4 billion draw when you have a 1-in-~292 million shot at winning.
But…. it’s not as simple as it looks.
Let’s talk about what any gambler (who actually wins more than he loses) knows: Only the money odds at the cashier window matter.
In this case that starts as $868 million (the cash payout.) The rest is a fictitious “time value” figure predicated on an annuity and if you advertised this by other than a government program as the “value” you’d go to prison for fraud.
But……. then you pay taxes. 39.6% federal, and only 25% is withheld when you get the check. Of course that makes it look bigger, but it’s not, and there’s basically no jackpot that won’t (effectively) all be subject to the 39.6% top federal rate irrespective of how much you make otherwise. Plus, if in a state tax state, whatever that is.
So let’s look at this as actually winning $524 million. Yes, that’s the real jackpot — about a third of what runs on the tickets and TeeVee. That would be considered an outrageous fraud in any other line of business, by the way, but there are no handcuffs for government lies.
Now here’s the really bad news — all of this assumes that you’re the only winner.
That gets increasingly unlikely with these huge jackpots, simply because as the buying frenzy that develops for each ticket the odds of a multiple winner goes up.
At roughly 500 million tickets sold (which, incidentally, is probably somewhere around what will be sold) there is an approximate 50% probability that there will be more than one winner. Therefore you must adjust the jackpot value to reflect this, which means it’s really worth about $393 million (actually a bit less because there might be more than two winners, but the odds of more than two fall off pretty dramatically.
So the draw really isn’t a positive-sum game, is it? Remember, you pay $2 for a ticket, not $1. But that’s the point, you see, of how these games are structured. On the money odds the previous jackpot for Saturday was a deeply negative gamble, even though it sure sounded good at “roughly three times” the mathematical odds until you figure it all out. Unfortunately it wasn’t because of the tax costs and the probability of multiple winners.
Incidentally Powerball changed the rules late last year to decrease the odds (by nearly half!) of hitting the jackpot. At the same time the odds of getting “something” (specifically, matching the powerball only) went up; that’s a $4 winner, which I suppose is better – a bit – than a kick in the teeth. Why? Because the “feeding frenzies” had died down…. and they wanted that $1 billion jackpot to try to make them happen again.
They got it, and your inability (or unwillingness) to do the math is the reason.
1) If I win, I promise not to gloat
2) If I have to at a tax, I might as well decide where the tax will go.
Common core math at work.
With a payout of $500 million, if you translate that to GDP, you actually rank in the bottom 10% of the world’s global economies, so you are kinda like your own country.
You would need:
1) Ace financial people to help you manage/shelter/hide/whatever this money from the( greedy hands) of the fed.gov while maintaining you in the lifestyle you will shortly become accostomed to. Paging the Clinton foundation!!!! Paging the Wall Street Banksters!!!
2) Security for your family and home. I’m sure there are some Blackwater mercs looking for employment these days and it is probably totally cool to travel in a reinforced black Suburban with your body guards armed with high power weaponry.
3) Lotsa lotsa practice saying NO, HELL NO, NO FUCKING WAY, and GET OUTTA MY FACE AND STOP ASKING ME FOR $$$ BEFORE MY SECURITY SHOOTS YOU when all your new “friends” show up with their hands out.
Of course, your life as you have known it will totally and completely change, so there’s that.
That being said, I actually bought a few tickets when I gassed up the car this am, just for shits and giggles.
May the odds be ever in my favor, heh.
Saw this ridiculous little post going around yesterday, and it was repeated by people who should know better, including someone with a degree in ACCOUNTING.
This is 3rd Grade arithmetic, for Chrissakes. ANYBODY can figure it out.
Methinks that our population has become more math-challenged than ever since the introduction of cheap calculators, and I was appalled when I learned that school teachers consider them to be essential “teaching tools”. How on Earth can students learn basic arithmetic when they have a machine to do basic calculations for them?
We need to raise the minimum wage. 😉
The Powerball: A ‘Hail Mary’ investment strategy for the poor
By Quentin Fottrell
Published: Jan 12, 2016 12:32 p.m. ET
Your wildest dreams are just one Powerball draw away.
It seems everyone in America is playing the Powerball lottery in the hopes of winning $1.5 billion. Office workers are organizing pools and hopefuls from all income brackets are lining up at lottery kiosks.
But this latest Powerball draw is different to other draws, scratch cards and games. Studies suggest that low-income Americans are still giving a higher share of their income to government lotteries. “Scratch cards are the primary source of income” for lotteries, says Les Bernal, national director of Stop Predatory Gambling, a Washington, D.C.-based nonprofit group. “They provide instant gratification and you can play them all day long. Most people take their winnings and plow them straight back into lottery tickets.”
U.S. lottery sales make the latest Powerball draw look like small potatoes: Lotteries are expected to have raised an estimated $78 billion in 2015, according to the North American Association of State and Provincial Lotteries, with some scratch cards costing as much as $50 in Texas and $30 in Massachusetts. “There is not a single act of government today that promotes more inequality of opportunity,” Bernal says. “This is government-sponsored gambling. It’s a ‘Hail Mary’ investment strategy for the poor.” Profits from the Powerball are used to fund public projects approved by state legislatures. Big jackpots are taxed at the maximum federal rate of 39.6% (and that doesn’t include state and city taxes).
The Powerball certainly captures the public imagination as it combines gambling, excitement surrounding a jackpot that builds over time and, at least for the lucky few, a rags to riches narrative that’s played out in the media, says Victor Matheson, professor of economics at the College of the Holy Cross in Worcester, Mass. Some 43 U.S. states, the District of Columbia, Mexico, Puerto Rico, and the U.S. Virgin Islands offer government-operated lotteries that supplement state taxes and public projects. “But they very much prey upon the poor,” Matheson says. “They are in the business of selling hope and taxing people who aren’t good at math.” Video lottery terminals, which resemble slot machines, are also profitable sources of funds for lottery coffers in around a dozen U.S. states.
Vulnerable people need more consumer protection from lottery advertising, Bernal says. State lotteries are exempt from Federal Trade Commission “truth in advertising laws. “The FTC lacks jurisdiction over lotteries run by state governments, so that would be a question for states,” a spokesman for the FTC told MarketWatch. And the Federal Communications Commission prohibits the broadcast of lottery advertisements, but has exemptions for lotteries “conducted by a state acting under the authority of state law.”
The Real Value Of A Powerball Ticket
Submitted by Matt McCaffrey via The Mises Institute,
Alex Tabarrok has a fun post calculating the monetary value of a Powerball ticket. He estimates that, as of the most recent drawing, each $2 ticket carries an expected monetary value of roughly $2.73. Superficially then, it’s worthwhile to buy one. However, Tabarrok also points out this is only true for a simple expected value calculation; after accounting for taxes and the possibility of a shared prize, a ticket’s monetary value is actually substantially lower (around $.75), making it a poor investment.
So why do people buy them? Are consumers hapless rubes throwing away their hard-earned money in exchange for nothing? Not necessarily.
The reason is simple: there’s much more to valuation and choice than expected monetary value. In fact, I suspect almost no one buys a ticket with any such calculation in mind. Rather than a cold estimate of the probability of future returns, the Powerball actually illustrates the subjective theory of value.
There are many ways for people find value in the Powerball beyond its expected monetary payoffs. Tabarrok observes, for example, that people find pleasure in anticipating the drawing. Such excitement is actually a major attraction of games of chance, where players have no control over the outcome.
In fact, I doubt most people playing the Powerball seriously believe they’ll win. Instead, people treat a ticket as the price of daydreaming about what they’d do with an enormous pile of cash. You can’t win without playing, so people pay a small amount as a way to justify spending their scarce time imagining their own Scrooge McDuck scenarios. For these people, the benefit of the ticket is greater than its cost.
These are just two reasons people might find value in lottery tickets, but there are countless others. Incidentally, value subjectivity doesn’t imply anything about whether the values people actually hold are morally acceptable or even economically sensible; just because our values are subjective, doesn’t mean they’re above criticism. But it does mean they’re about more than a simple expected monetary return.
My point is that although it may be convenient to reduce value to a simple, objective measure, doing so can never capture the complexity of what, how, and why people value the things they do.
By the way, I don’t have a problem with the idea of calculating expected value, as it’s a useful way of thinking about how to place present monetary value on a contingent event. I do, however, take issue with the idea that expected value calculus is the way for an economist to think about these problems. Focusing too much on objective calculations of worth drains the richness from economics and helps turn it into a mechanical exercise inapplicable to actual human behavior.
If anything, the economic way of thinking should stress the diversity and complexity of human values. Economists would be better off taking a humble approach, acknowledging that we can’t always fit human decisions into neat little boxes for economists to analyze, much less to build policy proposals on.
Public policy is actually one important reason these seemingly simple examples matter quite a bit. It’s a short few steps, for example, from defining value as the expected monetary return of a ticket, to claiming that buying a ticket is irrational, and finally, to insisting consumers not be given a choice to buy one at all. (As a side note, this isn’t an endorsement of public lotteries.) Although it might seem odd, this kind of argument is increasingly common among behavioral economists. Human errors and biases are open doors waiting for paternalism to rush through. Subjectivity is a way to slam them shut.
“Counting to 10 maff” by Stucky (for our newer visitors, he actually did this) ……
1,2,3,4,6,7,8,9,10.
Heh.
What’s the big deal about the ladies math ? She didn’t get the current amount of the lottery total right for people or that the population was rounded down? Was it because she made it simple and didn’t think she’d be graded on her ability to make a picture or meme? Why doesn’t the second one do a little research if they are so brilliant and get the actual total of the population right ?
Buy a search engine so you can google the U.S. Census report. 322,762,018 not 318,000,000. Better make a new one, then you can get the exact total of the lottery. Than divide it by the amount that is taken out for taxes. Than let me know how much it is if you want to make fun of a waitress for not rounding things up or down enough for you. Pretty sure 300 x 4 is 1200 then add zero’s. But then again, she didn’t know she had to get all technical for all of the internet to judge. Is it to confusing people to add the zeros in their head? Does abbreviations confuse people ? How’s the math wrong ? Educate me. I’d like to know.
Thank You
Randy
Are you as dumb as you seem?
The first dude (not lady) calculated that every person in America could be given $4.3 MILLION, when the calculation is really $4.39.
You’ve been educated, you fucking dumbass.
Make sure you vote for Hillary.
I love the smell of an ass kicking in the afternoon!
I hope it’s a visiting Canadian who bought the winning ticket – just to see heads explode over the loss of tax $.
Randy’s writing and grammar skills exceed his math skills.
—-“What’s the big deal about the ladies math?” (Did you mean lady’s instead of ladies, Randy? I know you did.)
—-“Why doesn’t the second one do a little research if they are so brilliant and get the actual total of the population right?” (Since we are discussing one person here, try this, Randy. Why doesn’t the second one do a little research if he is so brilliant and gets the actual total of the population right?)
—-“Buy a search engine so you can google the U.S. Census report.” (Nothing wrong here, save for one tiny detail. Did you actually BUY Google or whatever search engine you use? Search engines are free. Actually, Google should pay you to use its product since the fuckers can spy on you. No wonder your maff stinks.)
—-“Than divide it by the amount that is taken out for taxes. Than let me know how much it is if you want to make fun of a waitress for not rounding things up or down enough for you.” (The word is then, not than, Randy. Other THAN that, these two sentences are totally incomprehensible.)
—-“Is it to confusing people to add the zeros in their head?” (In this case, the word is too, not to, Randy. I’ll throw you a bone and write this one off as a typo.)
—-“Does abbreviations confuse people?” (Jesus Christ. The word “abbreviations” is plural. It’s “DO abbreviations confuse people?”
—-“How’s the math wrong? Educate me. I’d like to know.” (You spelled the word educate correctly, but here on TBP, edumacate is also acceptable. Heh. I’d give you a math lesson, but it might be a waste of time. Let me know if my grammar lesson in English helped, and, if it did, I’ll give the math a shot.)
Been a while since I posted and then I see Randy doing epic Mathematical Face Plant.
I have hard time believing that he can be that stupid. If you can’t figure out the math then you are as dumb as a fence post.
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Why do idiots buy lottery tickets?
Because it is the only possible way, however remote, that they could ever become rich. The $2 buys them a chance, extremely remote, to obtain enormous wealth.
And the govt preys on that desperation.
Jesus H Christ I am thoroughly embarrassed to be a part of the millennial generation. For those of you who think this type of mathematical error is an anomaly amongst millennial’s (ie, one idiot who failed 3rd grade math), I can guarantee you these types of calculation errors happen daily.
No wonder why I prefer to hang around baby boomers and talk with them. Despite how trapped in the matrix some of them are, at least I know they possess a brain and actually were educated. I was truly born in the wrong generation.
Dr. Pangloss said the rich gamble large sums for a small percentage gain. I assumed he meant for us to understand they gamble on a sure thing. Po’ folks gamble small amounts in the hope of an astronomical payoff. The chance of hitting the mark is remote. I’m reminded of the criticism of the movie, Gravity. An expert suggested there is no way to aim towards a point in space and actually get there flying by the seat of your pants.
HSF mentioned something in his hogs article that brought to mind why I would not like to win the lottery. Your whole life will change. If you want to experience change so badly, all you have to do is commit a serious crime, your life will be turned upside down just as surely as winning the lottery will turn it.
If you hate your life so much to wish for that catastrophic change, maybe a plutonium drink would help. Or hook up with Billy’s sister, hell, get her preggers.
silent majority says: No wonder why I prefer to hang around baby boomers and talk with them. Despite how trapped in the matrix some of them are, at least I know they possess a brain and actually were educated. I was truly born in the wrong generation.
And yet, your defense of boomers is suspect, these old farts are in deep kimchi financially. Also, how is it you can spell out whole words for somebody so young?
El Coyote said: “Also, how is it you can spell out whole words for somebody so young?”
I was fortunate enough to be raised by parents who placed a very high value on education and were incredibly educated themselves. I’m 30 years old, so technically I’m at the beginning stage of the millennial generation. All generations have their faults, but I have never seen such utter stupidity and entitlement then I have with the millennial generation.
Silent – not then I have, it is than I have!
Maybe your fine parents should have spent an extra hour on grammar!
Just joshing. Nicely done.
@Anonymous-Talk to text is a bitch. LOL. Thanks for catching my catastrophic grammar mistake.
Just messing with you, Silent. did your boyfriend and you thumb me down?
Anywhoo, the beautiful blonde – one of the smart boomers of which you speak – said she heard the lottery winner could give everybody in America $1 million. $318 million total from the expected payout
I asked her how much that would leave her if she did that.
She fumbled with her calculator and grunted a few times, ugh, stupid thing, let’s see, oh this isn’t working, hmm…
Okay, the total cash payout is half so that leaves [her] $50 million minus $3 million(?), $47million minus taxes (again), about $30 million she said.