UnThreaded | Threaded | Whole Thread (13) | Ignore Thread Prev | Next
Author: Radish Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 757815  
Subject: Re: Powerball Date: 2/25/2014 2:08 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
JLC,

So about 60% of the time it is single winner.

More than I'd expect, but I also think the trend is towards many people only playing on the big jackpots, which should decrease the number of single winners. Could be wrong about that, though.

I'm sure that can easily be factored into the statistical formula.

I'm still not sure the standard formula applies here. Let's consider, like you did earlier, a really simple lottery, but let's simplify even more. Let's say you pay $1, pick a number from 1 to 10, and the lottery picks a single number from 1 to 10 for the winner. For simplicity, let's say no one else plays. If you buy ten tickets, each with different numbers, you should win once at each lottery drawing. If the prize is, say, $11 then you have a "positive expected return". With a prize of $10 or less you don't.

But... now let's divide that into ten new scenarios. In scenario 1, you're only allowed to buy 1 ticket in your entire life. In scenario 2, you're allowed to buy 2 tickets in your life. And so forth, up to scenario 10 where you can buy ten tickets. Given a prize of $11 again, what is the "expected return" for each of the ten scenarios? In scenario ten, if you buy all ten tickets in the first lottery your return will be exactly $11 for a bet of $10. But in scenario one, your return will be either exactly $0 or exactly $11 for a bet of $1... and the $0 return is far more likely than the $11 return. And in scenario two, your return for a bet of $2 could be $0, $11, or $22 (if you play one ticket per lottery) or it could be $0 or $11 (if you play both tickets in the same lottery drawing).

I understand the classic definition of "expected return", but I don't think it has any meaning with respect to the previous paragraph, because the limitations are important criteria which are ignored by the classic definition of "expected return".

Similar limitations apply to the actual lottery in real life. You can't possibly buy any significant fraction of the total number of possibilities with any reasonable amount of money even if you play every lottery for the rest of your life. And, with respect to the jackpot, you either win or lose (nothing in between) in each drawing you enter. Therefore, there really is a limitation on both the number of tickets per lottery played and on the number of lotteries played, compared to the number of possible combinations in the lottery. (Note that even if you had the money and wanted to buy every possible combination, you couldn't. It would take far too long just to print the tickets out.) And as I just showed, it matters what the ratio is to the number of possibilities and the number of attempts than can actually be made. The classic "expected return" is irrelevant when the ratio becomes extreme... as it is in the big lotteries. Some different formula is required, if the result is to have any useful meaning.

Phil
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (13) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement