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$100 Invested in 100 $1 Lottery Tickets

111 points by magikbum 13y ago

geetee 13y ago
And that's how probability works?
rhapsodyv 13y ago
Invested?? "ok"...
- chiph 13y ago
  Negative examples can sometimes be the best examples. :)
  - rhapsodyv 13y ago
    Sure. An example of a gamble that is a little better is "Capitalisation Titles" (at least we have this in Brazil). You pay a fixed monthly fee and participate in some type of raffle with good prizes. In the end of the period, the bank gives all your money back with monetary correction. In other words: a lottery that you at least have your money back.
- samworm 13y ago
  Well for him it was an investment, because he was writing this article and it formed the basis thereof. So for him the expected reward of (monetary return + pleasure of playing) was bolstered by (increase in value of the resultant article by having a physical illustration).
- darrylb42 13y ago
  Sure why not, better return then a lot of stocks I bet on. (err invested in)
quackerhacker 13y ago
I love statistics and probability...but I thought this was going to start off like one of those old mastercard commercials lol. Just a question...isn't the odds and probability on the back of the scratchers??? 100 $1 lottery tickets = $100 bucks scratching tickets = 15 mins learning ROI and tending to a cramped hand = priceless
amalag 13y ago
He showed how to pay the 'stupid tax'
elmuchoprez 13y ago
I'm always amused that when they list the overall odds of "winning", they include the odds of just getting your money back ($1 prize on a ticket that cost $1), which isn't "winning" at all in my book.
- neogodless 13y ago
  Ha, well in your book. But once you buy a ticket, the $1 is sunk cost and you currently have $0 left of your $1. If you then get $1 from the ticket, you did "win" it and are $1 better off than you would have been if the ticket was not a winner. If you're willing to shell out the $1 in the first place, you should be happier winning $0.23 then being stuck with a losing ticket.
dice 13y ago
I think the final paragraph sums it up, although the author seems to miss the point: >The thrill and rush of possibly winning started to wear off after about the twentieth losing ticket. Each card had a couple of “Life” symbols on them, and every time you got a second you just dreamed of seeing the third one under the remaining graphite. However it never appeared and never will and it just kind of turned depressing. How could people put themselves through this humiliation and teasing every day of their lives? This is definitely an investment that is not rigged in your favor and can never really bring you positive returns. There is a thrill to knowing that, however small the chance, there is a large payout potentially waiting for you. Most people don't buy 100 scratchers at a time, or I would guess even one a day. Buying one lotto ticket a week, for instance, is a trivial expense for many people which also happens to be fun (the aforementioned thrill). The inevitability of the loss doesn't become as apparent over those time scales: selective memory results in people remembering their (typically small) wins and forgetting all of the losses in between.
- ttrreeww 13y ago
  Stock options: There is a thrill to knowing that, however small the chance, there is a large payout potentially waiting for you.
  - dyno12345 13y ago
    stock options are a much better bet than lotto tickets but also take years of your lift to obtain.
    - ttrreeww 13y ago
      Higher chance of payout, yes. But lower amount of payout. If you adjust for the payout amount, the liquidity difference, the amount of risk, and the amount of work involved, I say they work out to be roughly the same. Remember, no one can dilute your lotto tickets after the fact :)
    - uptown 13y ago
      You know you can just trade options without working to earn them, right? No years involved - just cash.
mattmaroon 13y ago
Lotteries are probably regulated to the point where this can't happen, but I used to play poker at some quasi-legal charity games quite often. They sold instant bingo tickets, which are very much like instant lottery tickets. There's a box with a defined number of losers and each prize. Most of the return from a box came from let's say 5 big prizes (out of let's say 1,000 tickets). Let's suppose the return is 50%, and the ticket price $2, so the total payout on a box is $1,000. There would be 5 $100 winners, and a number of smaller winners that added up to the other $500. The people selling them would watch and count how many of the $100 tickets were redeemed. (Gamblers tend to not hold onto the winning ticket secretly, they cash them in right away and buy more.) If there were, say, 2 of the big winners left but only 100 tickets remaining in the box, the guy running it would purchase them all. The two big winners would pay for the whole thing and his profit would then be the sum of all of the small prizes left (which was expected to be roughly equal to the 2 big tickets). Since it was a charity game he was effectively stealing from the charity, but also robbing the players collectively because any time you were near the end of a box but still able to buy tickets you could be sure there were no big prizes left. I wonder if instant lotteries ever do this. If they see it's near the end and they've got a disproportionate number of prizes left they could simply pull all of the tickets.
- rcxdude 13y ago
  I don't think that strategy cost the charity any money, unless the boxes would not have sold out anyway. The return on the boxes is fixed regardless of who buys the tickets.
  - patja 13y ago
    While it doesn't literally cost the charity anything this go-around, it is pretty unseemly behavior in a charity event. If I was a player in said charity's poker tournament and saw the organizers gaming the system to their own profit, I would be much less inclined to come back to next year's tournament. Many of these tournaments see lots of return players year to year, and it is in their interest to create an environment that maximizes the feelgood effect on players and charity donations. Many players will donate winnings back to the charity. Somehow it seems like these clever folks who are trying to outsmart the charity's game might not be so altruistic.
michaelbuckbee 13y ago
Of note is that there is at least one documented case of someone (supposedly) reverse engineering lottery algorithms to give themselves better odds: http://www.dailymail.co.uk/news/article-2023514/Joan-R-Ginther-won-lottery-4-times-Stanford-University-statistics-PhD.html http://www.dailymail.co.uk/news/article-2023514/Joan-R-Ginth...
- Retric 13y ago
  The statistics are off, the odds of someone winning several times is based on how many times they buy ticks but lot's of people play and winners often change their behavior. First off a lot of people have won once so you need to know how many winners there where and how much they spent to get odds of a second win. Total ticket sales are ~$78 billion assuming 1 winner per 50 million spent that's ~1,560 winners per year assuming they live another 40 years that's 62,000 people that have one once alive at any one time. So now you figure how many tickets do winners buy per year? Call it 5,000$ so now each year there is around 300 million spent by lotto winners on tickets. So, you would expect ~6 people to win a second time each year. But, this is where behavior's may really get out of whack. Of those 6 you would expect people to think they where destined to win. Let's say 1 person per year now spends 1/3 of there money on the lotto. As the payouts tends to be ~1/2th of ticket sales (jackpot's are around 1/4 but I assume non jackpot wins are rolled back in). They would then have a ~1/6 chance of a third win and a 1/36 chance of a second win. Of course that's just looking at winners for one year so around once every 20 years someone should win 4 times in a row.
neogodless 13y ago
Previous discussion: https://news.ycombinator.com/item?id=4398665 https://news.ycombinator.com/item?id=4398665 Also note that winning a $4 ticket will net you $6 :-) So the actual expected ROI is -64%
johnward 13y ago
You just need to find a way to hack the lottery: http://www.wired.com/magazine/2011/01/ff_lottery/ http://www.wired.com/magazine/2011/01/ff_lottery/
johnward 13y ago
I took a look at the odds in my state. The lower dollar amount tickets have worse odds. The higher you go up in ticket price the better the odds get. At $1 you might see odds up too 1:5 but all of the $20 tickets are <1:4. The best I saw was 1:2.89. I'm not goot with stats but wouldn't have been better to buy 5 $20 instead of 100 $1 tickets?
- dghughes 13y ago
  It's the same with slot machines penny may be 80% (payback) but $1, $5 and up may be 96% but that's over a million or even ten million spins.
ImprovedSilence 13y ago
good article. also: "the lottery is a tax for people bad at math." - some dude.
- breadbox 13y ago
  Joe Bob Briggs had a better quote, to the effect that lotteries are a tax on desperation. The people who play lotteries are often those who have run out of rational options. Seen in that light, lotteries are really a government preying on its own least-protected citizens.
marshray 13y ago
If he can consistently reproduce the $41 return, he has it made. He just needs to aggregate bundles of lottery tickets and sell them to investors looking for a guaranteed -60% return, and then pocket the extra 1%.
- scott_karana 13y ago
  Thanks for the laugh :)
- stevewilhelm 13y ago
  I'll guarantee any desired negative return for just a 0.5% fee.
dtrizzle 13y ago
Speaking of which, I need to buy a few Powerball tickets! http://www.usatoday.com/story/news/2013/05/17/saturdays--550-million-powerball-jackpot-could-get-even-bigger/2194135/ http://www.usatoday.com/story/news/2013/05/17/saturdays--550...
jvanderwal 13y ago
I wonder if there's any sort of somewhat even distribution to the winning tickets. If it's entirely random, there's shouldn't be. However, I knew a guy who worked at a gas station and he'd watch whenever people bought a bunch of tickets. If they scratched them off right there and didn't win anything, he'd buy the next few tickets. I believe he spent about $50-$100/week, but regularly won about $150/week.
- gus_massa 13y ago
  Check that he is reporting each and every time that he is playing. Ideally he should be writing the gambling in an Excel or Googledocs spreadsheet. Every one of them for at least three months. A common problem is that the people report only the good events and forget the bad strikes. Other problem is partial compensations: "I won +$50 and +$10$ and I only lost once -$30." really means "The firs week I won +$50. The second weak y lose -$40, but it not a lose because they come from the money I had won in the first weak. The third weak I won again +$10. I only was unlucky in the fourth weak because I lose -$30." It's not voluntary lying. Lucky strikes are interesting anecdotes, unlucky strikes are expected and boring. And bad memory and "compensations" are normal human bias. So write down everything systematically, or it's not useful to make statistics.
nmcfarl 13y ago
nyud.net cached version, as I’m getting a DB error: http://www.investinged.com.nyud.net/100-invested-in-100-1-lottery-tickets/ http://www.investinged.com.nyud.net/100-invested-in-100-1-lo...
ChuckMcM 13y ago
Ah probability, the science of denial :-) Having lived in Las Vegas during my teen years I got to see first hand how people rationalize their misunderstanding of statistics into winning 'systems' that if they just had enough money would payoff. I cannot count the number of times someone told me, in complete earnestness, that their system worked, they had proved it worked using a small stake of $X (which was all gone now) and if they had ($10X or $100X) of a stake their working system would return a handsome profit. And you say "Gee if it worked how come you lost all your money?" and they would say "You win and lose some, my system predicts when the big wins will come based on what has happened so far and I make big bets on that, and small bets on the ones we know are more likely to lose but to get them out of the way." And you say "So if you had a coin and you flipped it you would make a really big wager if the coin had just turned up heads 3 times in a row?" and they say "EXACTLY! You know this system?"
- ttrreeww 13y ago
  Just one more round of VC funding! Someone's gotta win! And if you don't buy the ticket, you are guaranteed not to win! Fair disclosure: I buy lotto tickets :)
  - ChuckMcM 13y ago
    Ya know, with an estimated $600M prize I'll probably by a PowerBall ticket this weekend too :-)
  - jaynos 13y ago
    I make sure to get in on the lottery pool at work. I'd hate to be the one guy that shows to work after everyone else wins and quits. Yeah, the odds are extremely thin, but consider it $2 to keep myself from committing suicide.
- TallboyOne 13y ago
  If you cannot count the number of times that exact conversation took place, we are in a bad state of affairs :|
networked 13y ago
>But wouldn’t it be great if you could just on a whim plop down $1 and buy a ticket that changed your life? Aside from the monetary loss this might not even be a good thing to dream about. Consider http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/ http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/.
- SomeCallMeTim 13y ago
  Awesome link! I've made a similar (though not as well-presented) argument myself on a thread on Reddit (in r/frugal -- people were actually defending buying a ticket using exactly the linked arguments). Glad to know the thinkers at lesswrong.com agree. :)
aresant 13y ago
The lottery let's people gamble (which is illegal in most US states) because of "the children". EG lottery profits go to support additional money for public schools. This is all after a 16% operating / administrative cost, of course, which amounted to ~$4.83b in California alone in 2012 (2). Back in 1988 an article appeared in the NYTimes suggesting that what was actually happening with the money, only 3 years in, was that state budgetary offices were simply using this newfound windfall to supplant existing commitments. Explained by the State Superintend at the time "the percentage of the state budget spent on public schools declined from 39 percent four years ago to 37.5 percent last year. Lottery dollars, he said, have in effect been used to make up the difference." Part of my frustration with California's recent retroactive tax-raises, ostensibly for education, is borne out of examples like these. (1) http://www.nytimes.com/1988/10/04/us/california-educators-assert-lottery-has-failed-to-pay-off-for-the-schools.html http://www.nytimes.com/1988/10/04/us/california-educators-as... (2) http://www.calwatchdog.com/2012/09/27/ca-lottery-states-cash-cow/ http://www.calwatchdog.com/2012/09/27/ca-lottery-states-cash...
- btilly 13y ago
  I fully understand that, and support the tax raises anyways because if that is the only way to get them, then we can get them that way. The problem is that the state constitution and politics makes it easy to get rid of revenue, but really hard to get it back. For instance consider Arnold Schwarzenegger, one of whose original goals was to drop the vehicle licensing fee from 2% of a car's worth to 0.65%. He got in office when times were good, he reduced that tax. Then times turned bad, and it was impossible to reverse that even though the state really couldn't afford it any more. This is about a $6 billion/year hole in our budget. That's on par with the recent tax increases. Except that the vehicle licensing fee was part of our budget for decades. It was stable and reliable. Our recent tax increases are temporary. What do we do in the long run?
  - thatswrong0 13y ago
    > The problem is that the state constitution and politics makes it easy to get rid of revenue, but really hard to get it back. As it is quite easy to start spending but not stop. > What do we do in the long run? Cut spending. Deal with the actual issue: pensions. The vehicle licensing fee 'problem' is just a red herring.
quannabe 13y ago
I don't enjoy/understand gambling. I really get no 'thrill' out playing games where the odds are against me. Also, I really find it difficult to understand how people can fool themselves into thinking that they will come out ahead in the long run. Are people really that bad at basic probability/statistics?
pclark 13y ago
My friend once went to a concert where entry cost "5 scratch cards" – there were about 150 people in attendance. I always wondered how the concert organisers did…
- justncase80 13y ago
  The next day they were probably wishing they had just gotten $5 instead.
  - maaku 13y ago
    And a sore wrist ;)
- A1kmm 13y ago
  Maybe it was a tax evasion scheme - in some places governments don't tax lottery winnings. Of course, in many jurisdictions, the concert organisers probably would be liable for sales / income tax for the scratch cards, but perhaps they believed they had less risk of legal consequences for not counting this as income.
tlarkworthy 13y ago
Is it worth doing this on rollovers. The expectation is actually positive then
- tunesmith 13y ago
  No... see above. Even if expectation is positive, it is still likely a bad decision. Google Kelly Criterion - it tells you what percentage of your bankroll you can risk on those kinds of bets. For most of us, it would work out to a fraction of a penny.
ctdonath 13y ago
Compute the average payoff. If it's positive, it's investing. If it's negative, it's gambling.
- umsm 13y ago
  That's not true. Investments can fail.
  - jlarocco 13y ago
    And every once in a while somebody walks into a casino, puts a coin in a slot machine, wins the jackpot and leaves with 100000x their initial "investment". In general, over the long term, investing makes money. In general, over the long term, gambling loses money.
- lotharbot 13y ago
  If the average payoff is negative, but the payoff is tied to a catastrophic event, then it's insurance. Risk mitigation is a valid part of investing. Gambling has a negative, random payoff.
- tunesmith 13y ago
  Occasionally, a large jackpot can return a positive average payoff, if it's powerball style and they accrue from round to round. However, the odds are so astronomically against any one ticket winning, that it would still be considered gambling. If a billionaire could risk enough of their fortune to gain a high probability of getting that winning ticket and therefore making an overall profit, then perhaps it would be investing from his perspective, but if you or I blows our $50k emergency fund and still has a 99% chance of losing it all, it's still gambling.
  - T-hawk 13y ago
    This strategy fails because multiple winners would split the jackpot. If one billionaire sees a positive return in buying up the entire probability space to get the jackpot, he must assume that another billionaire would also come to the same conclusion. No player can assume they're the only one applying the strategy; they each must assume the jackpot will split until a ticket is no longer positive value.
pessimizer 13y ago
>How could people put themselves through this humiliation and teasing every day of their lives? Skinner knows.
CurtMonash 13y ago
In the 1970s, when state lotteries were new, the Massachusetts lottery had a parimutuel payout, akin to horse racing -- whoever had the winning 4-digit number divvied up a payout. Based, I suppose, on anecdotal evidence, some guys in the Harvard physics department judged which numbers were likely to be least popular, and bet those, getting a positive return. However, this arbitrage quickly went away. It seemed that organized criminals started using the lottery as a low cost (indeed initially negative cost) way of laundering money, using a similar scheme. The upside is that this turned into a kind of state income tax on criminal income.
- fyi80 13y ago
  That's not arbitrage, that's like poker: players gamble against each other (effectively betting on what other people will bet on, with a bit randomization in the mix), house takes a cut of all the action.
lifeguard 13y ago
I prefer to buy stocks that pay dividends.
jack-r-abbit 13y ago
It would have been interesting to see him continue the investing with the $41 for a second round. If you go into it already willing to lose $100, reinvesting the winnings gives you more chances to win that big prize.
johnohara 13y ago
A second test would be to purchase 10 tickets from 10 different locations in order to change the influence of the state's internal randomization procedure during print production. Would be interesting to see if the payouts lined up with the expected value as well.
jmharvey 13y ago
I think he's underestimating the time he invested in this project. He says he scratched 100 tickets in 15 minutes. That's a pace of 9 seconds per ticket. I've bought a sizable number of lottery tickets, and that's a blazingly fast pace to scratch off (or otherwise remove) the latex, read the revealed numbers, determine if you have a winner, tear the ticket at the perforation, and sort the ticket into the appropriate pile.
Thrymr 13y ago
It looks like he bought 100 consecutive tickets. If the winning tickets are truly random, it wouldn't matter, but I wouldn't be surprised if the distribution is controlled in some way that ensures winning tickets will be more evenly distributed than random. Anyone know whether this is the case? If it is, the variance at least (if not the expected return) could be different if the tickets were purchased in 100 different places.
- the_cat_kittles 13y ago
  usually you can see how many of the bigger prizes have been collected during a run. If you didn't manually ensure they were not all clumped together, you might run into cases where tickets could be deduced to have substantially different odds (in either direction)... I think this has actually happened. You wouldn't want all the big prizes to get claimed right at the beginning, I imagine people would largely stop buying your tickets.
deleted 13y ago
[deleted]
justncase80 13y ago
If by investment you mean "waste of money". Then sure.
- justncase80 13y ago
  Or as the expression goes: Gambling is a tax for those who are bad at math.
gojomo 13y ago
Spending on scratchers is legal... and even encouraged by government advertising. But unless you're already rich enough to qualify as an 'accredited investor', there are legal barriers to investing in private companies Such irrational paternalism is insane.
- thaumaturgy 13y ago
  The risks of scratchers (and other lotteries) is known, controlled, and published. If you feel "ripped off" by a lottery, you are stupid. The risks of startup investment are murky and subject to manipulation. People can rip off other people. Some of the laws are there to protect people's retirement savings from investment scammers. (Whether those laws are effective or not is a debate I'm not qualified to have.)
joering2 13y ago
Just out of curiosity, does anyone know they do it at the power ball? I know the system shuts down long before drawing, but what else do they do? Some sort of DB dump and lock it in the safe or something? What are chances that an employee leaves a virus that randomly insert a row with winning numbers after being drawn?
- forsaleonly 13y ago
  But how is the winner going to get the ticket with winning numbers after it has been drawn? Not possible..
forsaleonly 13y ago
Since we are on the topic of lottery. Checkout my FREE lottery pool website: http://www.jackpotbuddy.com http://www.jackpotbuddy.com
drmr 13y ago
"spend just $1 and be rewarded in prizes that are worth exponentially more" Any exponent of 1 is 1. So you wouldn't be able to win anything 'more' than that at all. Exponentially.
- mappu 13y ago
  Perhaps taking powers of 1 reflects the futility of gambling? :) Instead, consider the $1 to be 100 cents. (Do you think 40 degrees is 'twice as hot' as 20 degrees?) A matter of scale and perspective.
- SEMW 13y ago
  When people say a quantity like $x is exponentially increasing, they generally mean it's going as $x(1 + k)^t for some k, not as ($x)^t. (And remember, any non-unitless quantity will be 1 in some units, nothing special about $1).
jaynos 13y ago
It helps if the game isn't fully random: http://www.wired.com/magazine/2011/01/ff_lottery/all/ http://www.wired.com/magazine/2011/01/ff_lottery/all/ It's Jonah Lehrer, but I doubt it's completely fabricated.
jaynos 13y ago
It helps if the game isn't fully random: http://www.wired.com/magazine/2011/01/ff_lottery/all/ http://www.wired.com/magazine/2011/01/ff_lottery/all/ It's Jonah Lehrer, but I doubt it's completely fabricated.
protomyth 13y ago
In the 90's right before ND was part of PowerBall, I was asked to buy the tickets for a whole office because I was going to MN. I bought $120 of tickets and did not have one ticket with any winning numbers (never mind a powerball). I was never asked to buy tickets again. I seem to remember the odds were better to win than miss all (5/49 + 1/42 era). Its a cute diversion for most and one of those weird office group things.
tyang 13y ago
Kind of like startup investing on speed without the extra zeroes.
dmak 13y ago
I did this once. I bought $100 worth of scratchers and won $500. It was a great day!

111 points by magikbum 13y ago

geetee 13y ago

And that's how probability works?

rhapsodyv 13y ago

Invested?? "ok"...

chiph 13y ago
Negative examples can sometimes be the best examples. :)
- rhapsodyv 13y ago
  Sure. An example of a gamble that is a little better is "Capitalisation Titles" (at least we have this in Brazil). You pay a fixed monthly fee and participate in some type of raffle with good prizes. In the end of the period, the bank gives all your money back with monetary correction. In other words: a lottery that you at least have your money back.
samworm 13y ago
Well for him it was an investment, because he was writing this article and it formed the basis thereof. So for him the expected reward of (monetary return + pleasure of playing) was bolstered by (increase in value of the resultant article by having a physical illustration).
darrylb42 13y ago
Sure why not, better return then a lot of stocks I bet on. (err invested in)

quackerhacker 13y ago

I love statistics and probability...but I thought this was going to start off like one of those old mastercard commercials lol. Just a question...isn't the odds and probability on the back of the scratchers??? 100 $1 lottery tickets = $100 bucks scratching tickets = 15 mins learning ROI and tending to a cramped hand = priceless

amalag 13y ago

He showed how to pay the 'stupid tax'

elmuchoprez 13y ago

I'm always amused that when they list the overall odds of "winning", they include the odds of just getting your money back ($1 prize on a ticket that cost $1), which isn't "winning" at all in my book.

neogodless 13y ago
Ha, well in your book. But once you buy a ticket, the $1 is sunk cost and you currently have $0 left of your $1. If you then get $1 from the ticket, you did "win" it and are $1 better off than you would have been if the ticket was not a winner. If you're willing to shell out the $1 in the first place, you should be happier winning $0.23 then being stuck with a losing ticket.

dice 13y ago

I think the final paragraph sums it up, although the author seems to miss the point: >The thrill and rush of possibly winning started to wear off after about the twentieth losing ticket. Each card had a couple of “Life” symbols on them, and every time you got a second you just dreamed of seeing the third one under the remaining graphite. However it never appeared and never will and it just kind of turned depressing. How could people put themselves through this humiliation and teasing every day of their lives? This is definitely an investment that is not rigged in your favor and can never really bring you positive returns. There is a thrill to knowing that, however small the chance, there is a large payout potentially waiting for you. Most people don't buy 100 scratchers at a time, or I would guess even one a day. Buying one lotto ticket a week, for instance, is a trivial expense for many people which also happens to be fun (the aforementioned thrill). The inevitability of the loss doesn't become as apparent over those time scales: selective memory results in people remembering their (typically small) wins and forgetting all of the losses in between.

ttrreeww 13y ago
Stock options: There is a thrill to knowing that, however small the chance, there is a large payout potentially waiting for you.
- dyno12345 13y ago
  stock options are a much better bet than lotto tickets but also take years of your lift to obtain.
  - ttrreeww 13y ago
    Higher chance of payout, yes. But lower amount of payout. If you adjust for the payout amount, the liquidity difference, the amount of risk, and the amount of work involved, I say they work out to be roughly the same. Remember, no one can dilute your lotto tickets after the fact :)
  - uptown 13y ago
    You know you can just trade options without working to earn them, right? No years involved - just cash.

mattmaroon 13y ago

Lotteries are probably regulated to the point where this can't happen, but I used to play poker at some quasi-legal charity games quite often. They sold instant bingo tickets, which are very much like instant lottery tickets. There's a box with a defined number of losers and each prize. Most of the return from a box came from let's say 5 big prizes (out of let's say 1,000 tickets). Let's suppose the return is 50%, and the ticket price $2, so the total payout on a box is $1,000. There would be 5 $100 winners, and a number of smaller winners that added up to the other $500. The people selling them would watch and count how many of the $100 tickets were redeemed. (Gamblers tend to not hold onto the winning ticket secretly, they cash them in right away and buy more.) If there were, say, 2 of the big winners left but only 100 tickets remaining in the box, the guy running it would purchase them all. The two big winners would pay for the whole thing and his profit would then be the sum of all of the small prizes left (which was expected to be roughly equal to the 2 big tickets). Since it was a charity game he was effectively stealing from the charity, but also robbing the players collectively because any time you were near the end of a box but still able to buy tickets you could be sure there were no big prizes left. I wonder if instant lotteries ever do this. If they see it's near the end and they've got a disproportionate number of prizes left they could simply pull all of the tickets.

rcxdude 13y ago
I don't think that strategy cost the charity any money, unless the boxes would not have sold out anyway. The return on the boxes is fixed regardless of who buys the tickets.
- patja 13y ago
  While it doesn't literally cost the charity anything this go-around, it is pretty unseemly behavior in a charity event. If I was a player in said charity's poker tournament and saw the organizers gaming the system to their own profit, I would be much less inclined to come back to next year's tournament. Many of these tournaments see lots of return players year to year, and it is in their interest to create an environment that maximizes the feelgood effect on players and charity donations. Many players will donate winnings back to the charity. Somehow it seems like these clever folks who are trying to outsmart the charity's game might not be so altruistic.

michaelbuckbee 13y ago

Of note is that there is at least one documented case of someone (supposedly) reverse engineering lottery algorithms to give themselves better odds: http://www.dailymail.co.uk/news/article-2023514/Joan-R-Ginther-won-lottery-4-times-Stanford-University-statistics-PhD.html http://www.dailymail.co.uk/news/article-2023514/Joan-R-Ginth...

Retric 13y ago
The statistics are off, the odds of someone winning several times is based on how many times they buy ticks but lot's of people play and winners often change their behavior. First off a lot of people have won once so you need to know how many winners there where and how much they spent to get odds of a second win. Total ticket sales are ~$78 billion assuming 1 winner per 50 million spent that's ~1,560 winners per year assuming they live another 40 years that's 62,000 people that have one once alive at any one time. So now you figure how many tickets do winners buy per year? Call it 5,000$ so now each year there is around 300 million spent by lotto winners on tickets. So, you would expect ~6 people to win a second time each year. But, this is where behavior's may really get out of whack. Of those 6 you would expect people to think they where destined to win. Let's say 1 person per year now spends 1/3 of there money on the lotto. As the payouts tends to be ~1/2th of ticket sales (jackpot's are around 1/4 but I assume non jackpot wins are rolled back in). They would then have a ~1/6 chance of a third win and a 1/36 chance of a second win. Of course that's just looking at winners for one year so around once every 20 years someone should win 4 times in a row.

neogodless 13y ago

Previous discussion: https://news.ycombinator.com/item?id=4398665 https://news.ycombinator.com/item?id=4398665 Also note that winning a $4 ticket will net you $6 :-) So the actual expected ROI is -64%

johnward 13y ago

You just need to find a way to hack the lottery: http://www.wired.com/magazine/2011/01/ff_lottery/ http://www.wired.com/magazine/2011/01/ff_lottery/

johnward 13y ago

I took a look at the odds in my state. The lower dollar amount tickets have worse odds. The higher you go up in ticket price the better the odds get. At $1 you might see odds up too 1:5 but all of the $20 tickets are <1:4. The best I saw was 1:2.89. I'm not goot with stats but wouldn't have been better to buy 5 $20 instead of 100 $1 tickets?

dghughes 13y ago
It's the same with slot machines penny may be 80% (payback) but $1, $5 and up may be 96% but that's over a million or even ten million spins.

ImprovedSilence 13y ago

good article. also: "the lottery is a tax for people bad at math." - some dude.

breadbox 13y ago
Joe Bob Briggs had a better quote, to the effect that lotteries are a tax on desperation. The people who play lotteries are often those who have run out of rational options. Seen in that light, lotteries are really a government preying on its own least-protected citizens.

marshray 13y ago

If he can consistently reproduce the $41 return, he has it made. He just needs to aggregate bundles of lottery tickets and sell them to investors looking for a guaranteed -60% return, and then pocket the extra 1%.

scott_karana 13y ago
Thanks for the laugh :)
stevewilhelm 13y ago
I'll guarantee any desired negative return for just a 0.5% fee.

dtrizzle 13y ago

Speaking of which, I need to buy a few Powerball tickets! http://www.usatoday.com/story/news/2013/05/17/saturdays--550-million-powerball-jackpot-could-get-even-bigger/2194135/ http://www.usatoday.com/story/news/2013/05/17/saturdays--550...

jvanderwal 13y ago

I wonder if there's any sort of somewhat even distribution to the winning tickets. If it's entirely random, there's shouldn't be. However, I knew a guy who worked at a gas station and he'd watch whenever people bought a bunch of tickets. If they scratched them off right there and didn't win anything, he'd buy the next few tickets. I believe he spent about $50-$100/week, but regularly won about $150/week.

gus_massa 13y ago
Check that he is reporting each and every time that he is playing. Ideally he should be writing the gambling in an Excel or Googledocs spreadsheet. Every one of them for at least three months. A common problem is that the people report only the good events and forget the bad strikes. Other problem is partial compensations: "I won +$50 and +$10$ and I only lost once -$30." really means "The firs week I won +$50. The second weak y lose -$40, but it not a lose because they come from the money I had won in the first weak. The third weak I won again +$10. I only was unlucky in the fourth weak because I lose -$30." It's not voluntary lying. Lucky strikes are interesting anecdotes, unlucky strikes are expected and boring. And bad memory and "compensations" are normal human bias. So write down everything systematically, or it's not useful to make statistics.

nmcfarl 13y ago

nyud.net cached version, as I’m getting a DB error: http://www.investinged.com.nyud.net/100-invested-in-100-1-lottery-tickets/ http://www.investinged.com.nyud.net/100-invested-in-100-1-lo...

ChuckMcM 13y ago

Ah probability, the science of denial :-) Having lived in Las Vegas during my teen years I got to see first hand how people rationalize their misunderstanding of statistics into winning 'systems' that if they just had enough money would payoff. I cannot count the number of times someone told me, in complete earnestness, that their system worked, they had proved it worked using a small stake of $X (which was all gone now) and if they had ($10X or $100X) of a stake their working system would return a handsome profit. And you say "Gee if it worked how come you lost all your money?" and they would say "You win and lose some, my system predicts when the big wins will come based on what has happened so far and I make big bets on that, and small bets on the ones we know are more likely to lose but to get them out of the way." And you say "So if you had a coin and you flipped it you would make a really big wager if the coin had just turned up heads 3 times in a row?" and they say "EXACTLY! You know this system?"

ttrreeww 13y ago
Just one more round of VC funding! Someone's gotta win! And if you don't buy the ticket, you are guaranteed not to win! Fair disclosure: I buy lotto tickets :)
- ChuckMcM 13y ago
  Ya know, with an estimated $600M prize I'll probably by a PowerBall ticket this weekend too :-)
- jaynos 13y ago
  I make sure to get in on the lottery pool at work. I'd hate to be the one guy that shows to work after everyone else wins and quits. Yeah, the odds are extremely thin, but consider it $2 to keep myself from committing suicide.
TallboyOne 13y ago
If you cannot count the number of times that exact conversation took place, we are in a bad state of affairs :|

networked 13y ago

>But wouldn’t it be great if you could just on a whim plop down $1 and buy a ticket that changed your life? Aside from the monetary loss this might not even be a good thing to dream about. Consider http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/ http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/.

SomeCallMeTim 13y ago
Awesome link! I've made a similar (though not as well-presented) argument myself on a thread on Reddit (in r/frugal -- people were actually defending buying a ticket using exactly the linked arguments). Glad to know the thinkers at lesswrong.com agree. :)

aresant 13y ago

The lottery let's people gamble (which is illegal in most US states) because of "the children". EG lottery profits go to support additional money for public schools. This is all after a 16% operating / administrative cost, of course, which amounted to ~$4.83b in California alone in 2012 (2). Back in 1988 an article appeared in the NYTimes suggesting that what was actually happening with the money, only 3 years in, was that state budgetary offices were simply using this newfound windfall to supplant existing commitments. Explained by the State Superintend at the time "the percentage of the state budget spent on public schools declined from 39 percent four years ago to 37.5 percent last year. Lottery dollars, he said, have in effect been used to make up the difference." Part of my frustration with California's recent retroactive tax-raises, ostensibly for education, is borne out of examples like these. (1) http://www.nytimes.com/1988/10/04/us/california-educators-assert-lottery-has-failed-to-pay-off-for-the-schools.html http://www.nytimes.com/1988/10/04/us/california-educators-as... (2) http://www.calwatchdog.com/2012/09/27/ca-lottery-states-cash-cow/ http://www.calwatchdog.com/2012/09/27/ca-lottery-states-cash...

btilly 13y ago
I fully understand that, and support the tax raises anyways because if that is the only way to get them, then we can get them that way. The problem is that the state constitution and politics makes it easy to get rid of revenue, but really hard to get it back. For instance consider Arnold Schwarzenegger, one of whose original goals was to drop the vehicle licensing fee from 2% of a car's worth to 0.65%. He got in office when times were good, he reduced that tax. Then times turned bad, and it was impossible to reverse that even though the state really couldn't afford it any more. This is about a $6 billion/year hole in our budget. That's on par with the recent tax increases. Except that the vehicle licensing fee was part of our budget for decades. It was stable and reliable. Our recent tax increases are temporary. What do we do in the long run?
- thatswrong0 13y ago
  > The problem is that the state constitution and politics makes it easy to get rid of revenue, but really hard to get it back. As it is quite easy to start spending but not stop. > What do we do in the long run? Cut spending. Deal with the actual issue: pensions. The vehicle licensing fee 'problem' is just a red herring.

quannabe 13y ago

I don't enjoy/understand gambling. I really get no 'thrill' out playing games where the odds are against me. Also, I really find it difficult to understand how people can fool themselves into thinking that they will come out ahead in the long run. Are people really that bad at basic probability/statistics?

pclark 13y ago

My friend once went to a concert where entry cost "5 scratch cards" – there were about 150 people in attendance. I always wondered how the concert organisers did…

justncase80 13y ago
The next day they were probably wishing they had just gotten $5 instead.
- maaku 13y ago
  And a sore wrist ;)
A1kmm 13y ago
Maybe it was a tax evasion scheme - in some places governments don't tax lottery winnings. Of course, in many jurisdictions, the concert organisers probably would be liable for sales / income tax for the scratch cards, but perhaps they believed they had less risk of legal consequences for not counting this as income.

tlarkworthy 13y ago

Is it worth doing this on rollovers. The expectation is actually positive then

tunesmith 13y ago
No... see above. Even if expectation is positive, it is still likely a bad decision. Google Kelly Criterion - it tells you what percentage of your bankroll you can risk on those kinds of bets. For most of us, it would work out to a fraction of a penny.

ctdonath 13y ago

Compute the average payoff. If it's positive, it's investing. If it's negative, it's gambling.

umsm 13y ago
That's not true. Investments can fail.
- jlarocco 13y ago
  And every once in a while somebody walks into a casino, puts a coin in a slot machine, wins the jackpot and leaves with 100000x their initial "investment". In general, over the long term, investing makes money. In general, over the long term, gambling loses money.
lotharbot 13y ago
If the average payoff is negative, but the payoff is tied to a catastrophic event, then it's insurance. Risk mitigation is a valid part of investing. Gambling has a negative, random payoff.
tunesmith 13y ago
Occasionally, a large jackpot can return a positive average payoff, if it's powerball style and they accrue from round to round. However, the odds are so astronomically against any one ticket winning, that it would still be considered gambling. If a billionaire could risk enough of their fortune to gain a high probability of getting that winning ticket and therefore making an overall profit, then perhaps it would be investing from his perspective, but if you or I blows our $50k emergency fund and still has a 99% chance of losing it all, it's still gambling.
- T-hawk 13y ago
  This strategy fails because multiple winners would split the jackpot. If one billionaire sees a positive return in buying up the entire probability space to get the jackpot, he must assume that another billionaire would also come to the same conclusion. No player can assume they're the only one applying the strategy; they each must assume the jackpot will split until a ticket is no longer positive value.

pessimizer 13y ago

>How could people put themselves through this humiliation and teasing every day of their lives? Skinner knows.

CurtMonash 13y ago

In the 1970s, when state lotteries were new, the Massachusetts lottery had a parimutuel payout, akin to horse racing -- whoever had the winning 4-digit number divvied up a payout. Based, I suppose, on anecdotal evidence, some guys in the Harvard physics department judged which numbers were likely to be least popular, and bet those, getting a positive return. However, this arbitrage quickly went away. It seemed that organized criminals started using the lottery as a low cost (indeed initially negative cost) way of laundering money, using a similar scheme. The upside is that this turned into a kind of state income tax on criminal income.

fyi80 13y ago
That's not arbitrage, that's like poker: players gamble against each other (effectively betting on what other people will bet on, with a bit randomization in the mix), house takes a cut of all the action.

lifeguard 13y ago

I prefer to buy stocks that pay dividends.

jack-r-abbit 13y ago

It would have been interesting to see him continue the investing with the $41 for a second round. If you go into it already willing to lose $100, reinvesting the winnings gives you more chances to win that big prize.

johnohara 13y ago

A second test would be to purchase 10 tickets from 10 different locations in order to change the influence of the state's internal randomization procedure during print production. Would be interesting to see if the payouts lined up with the expected value as well.

jmharvey 13y ago

I think he's underestimating the time he invested in this project. He says he scratched 100 tickets in 15 minutes. That's a pace of 9 seconds per ticket. I've bought a sizable number of lottery tickets, and that's a blazingly fast pace to scratch off (or otherwise remove) the latex, read the revealed numbers, determine if you have a winner, tear the ticket at the perforation, and sort the ticket into the appropriate pile.

Thrymr 13y ago

It looks like he bought 100 consecutive tickets. If the winning tickets are truly random, it wouldn't matter, but I wouldn't be surprised if the distribution is controlled in some way that ensures winning tickets will be more evenly distributed than random. Anyone know whether this is the case? If it is, the variance at least (if not the expected return) could be different if the tickets were purchased in 100 different places.

the_cat_kittles 13y ago
usually you can see how many of the bigger prizes have been collected during a run. If you didn't manually ensure they were not all clumped together, you might run into cases where tickets could be deduced to have substantially different odds (in either direction)... I think this has actually happened. You wouldn't want all the big prizes to get claimed right at the beginning, I imagine people would largely stop buying your tickets.

deleted 13y ago

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justncase80 13y ago

If by investment you mean "waste of money". Then sure.

justncase80 13y ago
Or as the expression goes: Gambling is a tax for those who are bad at math.

gojomo 13y ago

Spending on scratchers is legal... and even encouraged by government advertising. But unless you're already rich enough to qualify as an 'accredited investor', there are legal barriers to investing in private companies Such irrational paternalism is insane.

thaumaturgy 13y ago
The risks of scratchers (and other lotteries) is known, controlled, and published. If you feel "ripped off" by a lottery, you are stupid. The risks of startup investment are murky and subject to manipulation. People can rip off other people. Some of the laws are there to protect people's retirement savings from investment scammers. (Whether those laws are effective or not is a debate I'm not qualified to have.)

joering2 13y ago

Just out of curiosity, does anyone know they do it at the power ball? I know the system shuts down long before drawing, but what else do they do? Some sort of DB dump and lock it in the safe or something? What are chances that an employee leaves a virus that randomly insert a row with winning numbers after being drawn?

forsaleonly 13y ago
But how is the winner going to get the ticket with winning numbers after it has been drawn? Not possible..

forsaleonly 13y ago

Since we are on the topic of lottery. Checkout my FREE lottery pool website: http://www.jackpotbuddy.com http://www.jackpotbuddy.com

drmr 13y ago

"spend just $1 and be rewarded in prizes that are worth exponentially more" Any exponent of 1 is 1. So you wouldn't be able to win anything 'more' than that at all. Exponentially.

mappu 13y ago
Perhaps taking powers of 1 reflects the futility of gambling? :) Instead, consider the $1 to be 100 cents. (Do you think 40 degrees is 'twice as hot' as 20 degrees?) A matter of scale and perspective.
SEMW 13y ago
When people say a quantity like $x is exponentially increasing, they generally mean it's going as $x(1 + k)^t for some k, not as ($x)^t. (And remember, any non-unitless quantity will be 1 in some units, nothing special about $1).

jaynos 13y ago

It helps if the game isn't fully random: http://www.wired.com/magazine/2011/01/ff_lottery/all/ http://www.wired.com/magazine/2011/01/ff_lottery/all/ It's Jonah Lehrer, but I doubt it's completely fabricated.

jaynos 13y ago

protomyth 13y ago

In the 90's right before ND was part of PowerBall, I was asked to buy the tickets for a whole office because I was going to MN. I bought $120 of tickets and did not have one ticket with any winning numbers (never mind a powerball). I was never asked to buy tickets again. I seem to remember the odds were better to win than miss all (5/49 + 1/42 era). Its a cute diversion for most and one of those weird office group things.

tyang 13y ago

Kind of like startup investing on speed without the extra zeroes.

dmak 13y ago

I did this once. I bought $100 worth of scratchers and won $500. It was a great day!