Re: lottery utility

From: Dani Eder (
Date: Fri Feb 24 2006 - 09:42:27 MST

> We could add the notion of negative utility.
> "Negative utility" is my
> explanation for why lotteries are so popular in poor
> communities,
> despite the fact that the expected ROI of a lottery
> ticket is < 1;

The expected return in dollars may be less than one,
but the utility in 'happiness' may be positive.

A $1 lottery ticket at minimum wage is 0.2 hours
of labor, or 2.5x10E-6 working lifetimes. Assume the
odds are one in a million of winning $600,000.
Most lotteries return around 60% of the money
collected in prizes.

$600K invested at 6% real return yields a more than
minimum-wage lifestyle for you and a stream of
descendants or family members. The accumulated
stream of happiness (not having to work at a job)
eventually would be enough to exceed the cost.

The point is for a large lottery payoff, the return
in happiness becomes nonlinear. Not that most
people buying lottery tickets do this kind of
economic calculation. The real reasons people buy
lottery tickets is (a) they derive positive mental
feelings from the hope of winning and the excitement
of watching the results, and (b) humans are bad at
estimating the probability of low probability


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