Is Buying a Lottery a Smart Investment?
Lottery is a game where you pay money to buy a ticket and hope that your numbers match those randomly chosen by a machine. The more your numbers match, the bigger the prize you win. Some people are quite fond of this form of gambling. They spend billions of dollars a year on tickets, contributing to government receipts they could be saving for things like retirement or college tuition. Despite the fact that the odds of winning are extremely low, lottery players are convinced that there is a good risk-to-reward ratio, and that purchasing a ticket is just another smart financial move.
There is, of course, an element of truth to this belief. In the past, the proceeds of lotteries have been used to fund a variety of public and private projects, including roads, canals, wharves, and churches. They also played a role in the colonial history of America, helping to finance the establishment of the first English colonies. In fact, George Washington himself sponsored a lottery in 1768 to raise money to construct roads across the Blue Ridge Mountains.
But even if there is some merit to the notion that buying a lottery ticket is a smart, low-risk investment, it doesn’t hold up to scrutiny. For one thing, lottery proceeds are actually quite volatile. The vast majority of ticket sales are made to people who don’t win the jackpot. In fact, most lottery winners will end up bankrupt within a few years. And that’s not even counting the tax burden that they will have to pay on their winnings.
The other problem is that if you purchase a lottery ticket, you aren’t just losing money; you’re spending it on a game with very long odds of success. And the odds are even worse if you pick your own numbers rather than opting for quick-picks, as many people do. Harvard statistics professor Mark Glickman points out that when you choose a number such as your birthday or a sequence of personal numbers, you’re actually diluting your chances of winning by selecting a number that hundreds or thousands of other people have also selected.
This is especially true for those who play the Mega Millions or Powerball, which require that you select five different numbers out of a possible ten. Glickman suggests that instead of picking your favorite numbers, look for patterns on the ticket. If there are a lot of singletons, you should go for those. You can do this by charting the outside numbers that repeat on the ticket and marking the ones that appear only once — a group of singletons indicates a winning ticket about 90-90% of the time. If you are in the bottom quintile of the income distribution, you should probably pass on the lottery altogether and just save your money for emergencies or investments in real estate. Otherwise, you’re just wasting your money and your time.