Business Insider considered the dollar costs and probabilities involved in winning Wednesday’s massive $US500 million Powerball jackpot, and concluded that buying a ticket is a pretty bad decision.
In other words, a rational person who is all about the numbers and the money would not play.
However, for many people, playing the lottery is about much more than money.
Business Insider, like many offices across the country, is holding an office pool for tonight’s drawing. I have decided not to participate, mainly based on our expected value analysis.
My boss, Business Insider deputy editor Sam Ro, gave a completely different take on the lottery. He told me that a part of why he organised and bought into the office pool was the excitement and feeling of hope from buying a ticket. Just imagining what would happen with a win, putting aside the dramatically small probability of that happening, was worth more than the $US2 cost of the ticket for Sam.
Sam rarely plays the lottery. But when the jackpot balloons and gets national attention, he’ll drop $US2 for a ticket. Because for him, the ticket operates as a psychological insurance policy. If he plays and loses, he won’t find himself asking “What if I played?”
All of this is a wonderful illustration of a much deeper economic concept: utility. Rather than just looking at expected dollar outcomes like we did above, economists frequently consider how different outcomes affect the individual satisfaction, or utility, of economic actors.
Sam and I have different utilities attached to buying a Powerball ticket. In Sam’s case, the utility he gains from the simple pleasure and reassurance of buying the ticket outweighs the $US2 cost, and so, despite the fact that the expected dollar value of that ticket is likely negative, his positive utility gain makes the purchase a rational decision.
In my case, I’d probably just be annoyed at myself for wasting the $US2, and would either gain no utility or even have a small loss of utility for playing, and so it’s rational for me to not buy a ticket.
Whether or not you choose to buy a ticket is up to you. For those of you who are playing, good luck!