Lottery Investment?

[pboychuk]

I was having an argument with someone and was wondering if anyone had an opinion.

Is buying a raffle/lottery ticket an investment?

[mattSantill]

Buying a raffle/lottery ticket..... I would say is not an investment.

I do not feel anything is an investment where the odds are not in your favor.

[freedom.project]

I think its more of a gamble than anything.

But then there might be people who argue that investing is gambling.

But in my opinion, gambling is not investing because when you invest in something, the numbers make sense on paper. In the lottery, the numbers will never make sense unless you purchase a large percentage of lottery tickets, but who does that?

[pboychuk]

Buying a raffle/lottery ticket..... I would say is not an investment.

I do not feel anything is an investment where the odds are not in your favor.

Yes, that is probably the primary point of my argument, It sorta like a "best answer" multiple choice question. Because theoretically, anything could be an investment. For example, i purchased a hamburger, it was an investment because there was a chance I would bite into a diamond. So, I am sure there is some logic rule that says a definition must have certain limits.

But, to be correct to the definition, I would consider the fact that if you bought every raffle ticket you would surely win, but you would not gain anything. So you arent really investing into the probability of gaining a return, but instead a chance.

Anyways, its probably not worth thinking about, I just love to argue.

[akula]

Yes, that is probably the primary point of my argument, It sorta like a "best answer" multiple choice question. Because theoretically, anything could be an investment.

not really..in a general sense, investment opportunities have to meet certain legal requirements (like providing reasonable forecasts of investment returns), or more specifically, some investment opportunities have to be registered with the regulator..so that would be a legal distinction between a "gamble" and an "investment.

the mathematical distinction between the two is more interesting. "investments" are priced above the risk efficiency curve...so the amount of return offered fairly corresponds with the risk. "gambles" on another hand, are priced bellow the risk efficiency curve, so that gamblers are rewarded less than what their risk is worth - for this reason, when it comes to gambling, the house always wins.

[akula]

But, to be correct to the definition, I would consider the fact that if you bought every raffle ticket you would surely win, but you would not gain anything.

that's right..if you bought enough tickets for probability of winning to equal 1, the cost of the tickets would be more than the prize it self (i.e. the opportunity is risk inefficient). the lottery is a business, it's designed to make money for the organizer, and to achieve this objective, actuaries are employed to make sure that the odds (and the corresponding ticket prices) are on the side of the organizer, so that it is impossible for the shop to go bust.

[pboychuk]

not really..in a general sense, investment opportunities have to meet certain legal requirements (like providing reasonable forecasts of investment returns), or more specifically, some investment opportunities have to be registered with the regulator..so that would be a legal distinction between a "gamble" and an "investment.

the mathematical distinction between the two is more interesting. "investments" are priced above the risk efficiency curve...so the amount of return offered fairly corresponds with the risk. "gambles" on another hand, are priced bellow the risk efficiency curve, so that gamblers are rewarded less than what their risk is worth - for this reason, when it comes to gambling, the house always wins.

Oh, I wasnt saying I believed what you quoted, that is what I used to counter the argument that a lottery ticket is an investment. However, your 2nd paragraph basically answer the question as best as it could possibly be answered. My roomate will probably dispute it, but he is ignorant to anything business related, and just wants to use a broad definition from dictionary.com

[BusinessAdviser]

This definition pretty much sums up my thoughts:

Investing - Laying out money or capital in an enterprise with the expectation of profit

Based on this definition, I do not think that purchasing a lottery ticket is an investment for at least two reasons:

1) Laying out money or capital in an enterprise...

When purchasing a lottery ticket, you are not laying out money in an enterprise for it to use in its business growth. Instead, you are merely a customer, laying out money to purchase the product that is provided. Thus, a lottery ticket doesn't satisfy this part of the definition.

2) ...with the expectation of profit

This part of the definition speaks for itself. When you purchase a lottery ticket, any rational expectation is one of loss.

As a result of this analysis, I do not think a lottery ticket is an investment.

[jasaunders]

that's right..if you bought enough tickets for probability of winning to equal 1, the cost of the tickets would be more than the prize it self (i.e. the opportunity is risk inefficient). the lottery is a business, it's designed to make money for the organizer, and to achieve this objective, actuaries are employed to make sure that the odds (and the corresponding ticket prices) are on the side of the organizer, so that it is impossible for the shop to go bust.

Lottery jackpots roll over when no one wins. If the jackpot reaches $500 million and the odds of winning are 1 in 200,000,000, then you could theoretically buy all 200 million combinations and you would be assured of winning. However, then it comes down to how many other people bought tickets and the probability that you would split the jackpot with other people. If only 100 million tickets were sold (and were all unique), then you have a 50% chance of winning the $500 million jackpot and a 50% chance of winning a $250 million jackpot, and you are a winner in each case.

(disclaimer, obviously there are a lot of assumptions made in the above example, ie. not everyone has unique tickets and if you buy $200 million worth of tickets, the jackpot increases)

[pboychuk]

Lottery jackpots roll over when no one wins. If the jackpot reaches $500 million and the odds of winning are 1 in 200,000,000, then you could theoretically buy all 200 million combinations and you would be assured of winning. However, then it comes down to how many other people bought tickets and the probability that you would split the jackpot with other people. If only 100 million tickets were sold (and were all unique), then you have a 50% chance of winning the $500 million jackpot and a 50% chance of winning a $250 million jackpot, and you are a winner in each case.

(disclaimer, obviously there are a lot of assumptions made in the above example, ie. not everyone has unique tickets and if you buy $200 million worth of tickets, the jackpot increases)

So I guess that begs the question, even though I am being nieve, why don't people devise a method to buy every possible combination making a 100% chance of winning? You could loose money if more than one person won, but I assume that person would be the unique winner in more instances than not.

[jasaunders]

The odds of winning the Mega Millions I believe is somewhere slightly over 200 million to one if I recall.

First of all, the jackpot never reaches $500 million. I think the highest jackpots ever have been in the 300's. Secondly, the announced jackpot is what you would get paid if you took the long term annuity option. If you take a lump sum payment it is typically about 51% of the jackpot amount. And thirdly, you have to pay taxes on your winnings. Depending on how you structure your taxes, all in all, you may only end up with about 30% of the jackpot. Therefore, if the odds were 1 in 200 million, the jackpot would need to be over $666 million. This assumes that you are the only winner. When the jackpot gets high, more people play and the probability of a split jackpot increases significantly.

[akula]

So I guess that begs the question, even though I am being nieve, why don't people devise a method to buy every possible combination making a 100% chance of winning?

for the same reason that players don't go to the race track and place a bet on every horse, or bet on both the teams in a football game

it's got to do with how risk is priced (i.e. the odds)

[mattSantill]

I will play devils advocate......

Buying a lottery ticket or raffle ticket generally benefits society in one way or another. 35% of all Mega Millions ticket sales goes to support public education, public health, scholarships, and aid to counties and cities. Usually raffle tickets are sold to benefit some organization.
The individual may not benefit completely from the lottery or raffle ticket but collectively the investment benefits society as a whole. The same way investing in a business benefits the entire country it can be argued that investing in a lottery ticket or raffle ticket will do the same.

[jasaunders]

I will play devils advocate......

Buying a lottery ticket or raffle ticket generally benefits society in one way or another. 35% of all Mega Millions ticket sales goes to support public education, public health, scholarships, and aid to counties and cities. Usually raffle tickets are sold to benefit some organization.
The individual may not benefit completely from the lottery or raffle ticket but collectively the investment benefits society as a whole. The same way investing in a business benefits the entire country it can be argued that investing in a lottery ticket or raffle ticket will do the same.

I would argue that you are incorrect, because the largest purchasers of lottery tickets are poor and low income individuals. Middle income and high income people don't buy lottery tickets nearly as much as lower income level individuals.

So basically it is taking money from the poor to redistribute it among many causes (usually education). It's not taking from the rich and giving to the poor. Although, you do have an economic advantage when a low income person wins a large sum of money and spends it very quickly.

[maxcommodity1]

I havent been able to digest the calculation of the expected payout since i have no understanding in the game..
One thing for sure, i do agree with putting lottery as a mere entertainment but not an investment. Dont let lottery destroy our mood–that if we keep on failing...