Friday, 6 June 2008

$50 Million Powerball

In Australia recently there was a Powerball game that included a $50 million jackpot. Powerball is a lottery game. Many people at my work had purchased tickets. The jackpot was the largest in Australian history.

What really surprises me is how many people seem to think lotteries are clean and legitimate yet when they speak about games played in the casino they are heavily against it. For example, my dad buys lottery tickets all the time. He warned me however never to go to Crown Casino because "the odds are against you." He reminded me that in its first year of operation, Crown made $250 million profit.

But lotteries make huge profits as well. My dad was the one who told me that for every dollar spent on lotteries, 50 cents must by law go to the Government, 25 cents to the lottery company, and 25 cents to the jackpot. This means that for every $1 that lottery players spend, they can expect to collectively get back 25 cents. Those percentages do not look good.

Still my dad argues that at the casino because there are bet limits and because you play often and because the prizes are small, it is certain that the casino will win and you will lose. However, with lottery you pay a small amount with the expectation of winning big. It is true that in casinos the odds are against you. Your expected profit must be zero otherwise the casino will go out of business in the long run. However, this must also apply for lottery operators. If the odds weren't against you when you play the lottery, lottery operators would go out of business. It does not matter that the prizes won may be bigger. To keep expected profits positive for the operator, that bigger prize must be compensated for by a lower probability of winning. This may explain why in casinos you see quite a few people making money. One casino operator on a documentary on TV said, "We want to make them win a little so they come back. Then we take all their money." Lotteries however are almost impossible to win. My parents have been playing for decades now. They are not millionaires yet.

One could criticize gamblers by saying that their activities have negative expected payoff. However, many other activities have negative expected payoff e.g. watching a movie or having children. It is important then to see gambling as entertainment. Spending time at the casino can be good for socialization. Lotteries don't seem to offer much opportunity for socialization. Rather, they give people the opportunity to imagine that they would be millionaires. My dad always says, "If I won the lottery, I would..." It seems as if he has his whole life planned out, yet this plan is all contingent upon him winning the lottery.

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