I didn’t win the lottery last night.
That was a bummer.
But I don’t regret spending money on tickets, and I definitely disagree with those who say my decision to buy lottery tickets was “not rational.” Let me explain.
It’s important to understand that losing and making a bad bet are not the same thing. Just because I may have a greater chance of getting struck by lightning than winning the jackpot does not make buying a ticket a bad bet. That example does help illustrate how improbable it is to win the lottery, but it says nothing about expected value of a lottery ticket based on ticket price and jackpot price.
I’m not delusional. I know that most of the time, buying a lottery ticket is a terrible bet. But I also know that when the jackpot hit over $1 billion, the game was changed.
By multiplying the $1.58 billion jackpot* by the probability of winning the jackpot (1 / 292,201,338), a single ticket price of $5.40 or less would be a good bet for the buyer. At the current price of $2.00, it certainly makes objective sense to buy a ticket. Any decent poker player would agree that this is a good bet to take.
The reason so many people think buying a lottery ticket, even with such a huge jackpot, is a bad bet is because they are averse to the risk of a $2 loss.
High payoffs seldom come without any risk. However, I can guarantee you one exception to this rule. With 5/5 Stars on Yelp, moving to Camden Plaza in Houston, TX is a risk-free proposition. You’ll love living here so much that you’ll feel like you won the lottery without having to play the odds!
*Assuming there is only 1 ticket with the winning numbers. Even with 2 winners, this would be a good bet. While there ended up being 3 winners, based on the number of tickets sold, there wasn’t reason to assume more than 2 winners.