Streams

Please Explain: The Lottery

Friday, October 07, 2011

We’ll find out how lotteries work and why we play. Victor Matheson, Associate Professor of Economics at College of the Holy Cross in Worcester, Massachusetts, and  Brent Kramer, a data analyst at the Fiscal Policy Institute, and Adjunct Assistant Professor at Borough of Manhattan Community College, tell us where lottery money comes from, where it goes, and look at what the odds are of winning it big!

Guests:

Brent Kramer and Victor Matheson

Comments [21]

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Mar. 07 2013 05:24 AM
The Lotto Black Book from Nevada

Good work since I am a great lottery lover

Nov. 17 2011 04:47 AM
Player from Manhattan

I consider the advertisement of a lottery jackpot paid over a long period of time to be false advertising. Players do not calculate how much less the lump sum actually is and are drawn in by the large advertised number so, for example, the State can theoretically advertise the same $1 million jackpot paid over 26 years to be $1 billion paid over 75 years (I didn't make this calculation precise for my example here). Essentially, they are just inflating the true number to attract players. What would be fair would be advertising the lump sum jackpot with the offer from the State to invest it for 26 years if a winner prefers.

Oct. 17 2011 10:28 AM
Tony from The Bronx

If someone wins the lottery and gives the ticket to a not-for-profit organization, can the organization cash in the ticket get the jackpot tax free?

Oct. 08 2011 01:56 AM
Victor Matheson from Worcester

I was on the show and will answer a couple of the questions here.

If you die before getting all of your payments, your heirs get the money, but also the tax liability.

Playing the same numbers every week gives you exactly the same chance of winning as playing different numbers every week. Of course, playing 30 weeks in a row gives you 30 times more chances to win than playing once.

Playing in a group gives you more chances to win but reduces your payout if you do. Probably the main reason to play an office pool is that you don't want to be the only person in the office not to win in the off chance the jackpot comes through.

It is possible that under some very large jackpots, the expected value of a lotto ticket can exceed the price of the ticket. This is rare but does happen in roughly 1% of all lotto drawings.

For tax reasons it is better to take the annuity than the cash unless you think you can earn a much higher rate of return on your investments than the lottery association does when it invests for you in government bonds. Despite this, most people want the money now. Human nature.

Finally, lotteries do offer an opportunity to radically change your circumstances. But saving money by not buying tickets and regularly investing that money pay returns as well. A poor person who saves will never accumulate $10 million, but a poor person who buys lottery tickets is unlikely to accumulate $10 thousand, but realistically can save that.

Oct. 07 2011 02:50 PM
Amy from Manhattan

When I was in Spain in 1974, there was a lottery conducted by & for the benefit of handicapped people. It was called the Loteria Pro Ciegos (lottery for the blind), but I saw people w/all kinds of physical handicaps on the streets selling tickets. I think many of them had been wounded in the Spanish Civil War ~40 years earlier. It also made me realize how invisible people w/disabilities were in the US at the time; this changed some after the ADA was passed. I don't know if this lottery is still going on in Spain; I was hoping to ask how often lotteries were used for this purpose in other places, but my call wasn't taken....

Oct. 07 2011 02:04 PM
josie from NYC

I believe that if you die before all the lottery payments have been made your estate may owe taxes on the remaining amount of the annuity.

Oct. 07 2011 01:57 PM
fran from Brooklyn

My grandfather used to run a private lottery - he called it running numbers

Oct. 07 2011 01:57 PM
david from NYC

Would you do better taking a lump some or over 30 years then selling it to a company that purchases annuities?

Oct. 07 2011 01:56 PM
Amy from Manhattan

If you play the same numbers every time, doesn't that increase your chance of winning over time? Isn't there more chance of a given combination being picked in 100 drawings than in 1?

Oct. 07 2011 01:55 PM
Christopher from New York, NY

You stated that mathematically, the best chance of winning comes from not playing. Mathematicians would look at expected value of the gamble rather than the odds. Clearly, in the first round of the lottery, the expected value of $1 "bet"/ticket is less than $1. However, my understanding is that the money in the pot in NY stays there and is added to by new ticket buyers, thus the expected value should increase. Is there a point in NY where the expected value from buying a ticket in the lottery is greater than the price of the ticket?

Oct. 07 2011 01:53 PM
Mark Grannon from Midland Park, NJ

I just turned on the show so sorry if this has been asked -

1) Is the annuity safe. Will the states be able to pay 26 or 30 years from now?

2) Which do you think is better cash or annuity?

Thank you.

Oct. 07 2011 01:52 PM
antonio from bayside

Any history regarding how the legal lottery related to the former "numbers" racket that used to be popular in our city or others?

Is it true the scratch offs only have winning tickets systematically spread across the state? i.e. one in montauk one in erie etc...

Oct. 07 2011 01:50 PM
Robert from NYC

does a large group lotto playing, makes any sense? probabilistically it should rise a chances.

Oct. 07 2011 01:50 PM
Amy from Manhattan

sanych, the word "lottery" comes from "lot" as in "drawing lots," when the lots were put into a container & 1 was drawn out. As far as I know, there's no connection w/Lot from the bible, although there is one w/the Purim story, in which the date for the massacre of the Jews in the Persian empire was chosen by lot. It may also be related to the expression "your lot in life."

Oct. 07 2011 01:45 PM
see

Take a look at the Powerball FAQ - it's informative and funny too.

Oct. 07 2011 01:44 PM
Jeffrey from nyc

your guest mentioned a 3rd type of lottery emerging now. what is it?

Oct. 07 2011 01:42 PM
Ken from Upper West Side

I heard of a study that found that it actually makes sense for the poor to play the lottery because their chances of getting rich through some other means are even slimmer.

Oct. 07 2011 01:37 PM
Brian from midtown

Is it true that most lottery-players vote Republican in the event that they strike it rich?

Oct. 07 2011 01:34 PM
sanych

Does the name "Lottery" comes from "Lot" - the only righteous man in Sodom?

Did he actually sell lottery and this fact was lost in translation of the Hebrew Bible (re: previous segment on 400 years of King James Bible)?

Oct. 07 2011 12:03 PM
eCAHNomics

Most lotteries are just a way of stealing from the poor to give to the middle & upper middle classes. Mostly poor people buy tickets and mostly proceeds go to state universities, populated by those who are much better off than the ticket buyers. Lotteries are a disgusting scam.

Oct. 07 2011 11:13 AM

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