Myths of the big jackpot

Posted at 3:02 PM on November 27, 2012 by Bob Collins (8 Comments)

You've probably heard the Powerball jackpot is the largest it's been in the 20 years of helping people part with their money. That, alone, may have motivated you to buy a ticket.

One question: Why now?

"People visualize this exciting big outcome, it's more salient to them," Barbara Bickart, who teaches consumer behavior at Boston University, told the Boston Globe. "My sense is that there's a large group of people that don't normally buy tickets. When they see the jackpot that big, they say, 'This is one I don't want to miss out on.'"

Powerball is a great chance to observe the strange behavior of humans, and not just their poor math skills.

For example, last weekend the Powerball jackpot was $325 million and while it provided a little interest, it didn't send people scurrying to the store to buy a ticket. Today, it's up to $500 million and people are jamming the stores to get a piece of the action.

So, $325 million was chump change? Two weeks ago, by the way, it was $185 million.

Also, by waiting until more people were buying tickets, you actually waited until your odds of winning got worse.

If you win and take the one-time payout -- and you know you will -- the total amount you win is "only" $221,813, 500 -- or roughly $100,000 less than the total jackpot that didn't interest you a week ago.

And, just for the record, taking the 30 payment annuity would give you a little over $11 million a year after taxes in Minnesota.

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Comments (8)

Also, by waiting until more people were buying tickets, you actually waited until your odds of winning got worse.

I'll nit-pick and say that the odds of winning didn't change. The odds of being the only person (or group) with a winning ticket did change.

This site has a detailed analysis of the odds and a nice graph that shows how the probability of no winners, one winner and two or more winners varies with the number of tickets sold.

Posted by JackU | November 27, 2012 3:34 PM

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IF we bring it around to politics....

You want to take the one time payment because they (pick your political boogie man) are going to raise income taxes so this keeps more money in your pocket.

Posted by BJ | November 27, 2012 3:45 PM

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I take the annuity. $11 million a year for 30 years is like being a number three starting pitcher until I'm 62 years old.

The doubling of the price to $2 is a complete sham. Your cost to enter doubled, your odds of winning did not.

Posted by Kevin Watterson | November 27, 2012 3:51 PM

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//If you win and take the one-time payout -- and you know you will

Of course I will! I understand the payments stop if you die, and at my age I'd be a fool not to take it all right now.

I would buy a ticket, but I figure it wouldn't improve my odds very much compared to my chances of finding the lucky ticket on the sidewalk.

People where I work complain about the bite the tax man will take. I figure he can have whatever portion he wants of the money I will never have. If I should be lucky enough to find that ticket, I shall valiantly try to struggle along on whatever I have left.

Posted by John P. | November 27, 2012 3:55 PM

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Just for the love of math it should be noted that your odds of winning the Power Ball are exactly the same regardless of how many people enter (referenced in third to last paragraph) - the odds are based on the six balls coming up, not tickets sold. You might win less, if someone else happens to have the same numbers, but such is life.

Posted by Jon Hunter | November 27, 2012 4:25 PM

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Kevin, while the odds of winning didn't change, the prizes have increased in value. Now if you get them all, except the powerball, you get $1mil. It used to be $200k.

I play the lottery often. Not every week, but at least a couple times a month. When the jackpots get high, I play more often. I've won a few bucks here and there, but haven't offset the money that I've put in. But it is totally worth it for me. The money goes to things I'm in favor of. I truly believe I don't pay enough taxes. And I COULD win. It is worth every penny for the escapism it allows me when I dream about all the things I would do with the money.

Can't win if you don't play...

Posted by Kassie | November 27, 2012 5:03 PM

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Kassie I think the prizes should double in value as well. Don't make it twice as expensive to play but only has as much rewarding.

I also don't fall for the "statisticians" who try to tell you what your odds are. Your odds are 50-50 if you buy a ticket. You'll win or you won't win.

Posted by Kevin Watterson | November 28, 2012 9:32 AM

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A group at my office buys in for big jackpots. I don't buy in because I think I'll win; I'm doing it to rent a dream for a few days.

Posted by TJ | November 30, 2012 2:11 PM

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