Lotteries

𝗪𝗼𝘂𝗹𝗱 𝘆𝗼𝘂 𝗮𝗰𝗰𝗲𝗽𝘁 𝗮 𝟵𝟬% 𝗱𝗶𝘀𝗰𝗼𝘂𝗻𝘁 𝗳𝗼𝗿 𝘆𝗼𝘂𝗿 𝘀𝗲𝗿𝘃𝗶𝗰𝗲𝘀?

This post is more for fun than finance, so if you're here for market updates, tune in next week. For now…let’s talk lotteries.

You could say playing the lottery is like a hedge on your income: small cost, max upside. Someone 𝘩𝘢𝘴 to win, right?

But here’s my issue, not with the lottery itself, but with how people 𝘷𝘪𝘦𝘸 the winnings.

Lotteries promise the average person a shot at extreme wealth overnight. It's a beautiful dream. But when you break down the actual 𝘳𝘦𝘵𝘶𝘳𝘯 𝘰𝘯 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵, the numbers tell a very different story.

Let’s take the UK National Lottery:
🎟️ A single ticket costs £2
🎱 Odds of hitting the jackpot (all 6 numbers): 1 in 45,057,473
💰 Average jackpot winnings: £13 million

Sounds like a great return...until you do the maths.

In any other type of gambling, your return is directly tied to the odds.
Bet £100 on 5-to-1 football odds? You win £500.
Place £2 on a 500,000-to-1 accumulator? You would win £1 million.

𝗜𝗳 𝘁𝗵𝗲 𝗹𝗼𝘁𝘁𝗲𝗿𝘆 𝘄𝗲𝗿𝗲 𝗳𝗮𝗶𝗿, a 1-in-45 million chance should pay £𝟵𝟬 𝗺𝗶𝗹𝗹𝗶𝗼𝗻 on a £2 ticket. Instead, it pays £13 million. And we 𝘤𝘦𝘭𝘦𝘣𝘳𝘢𝘵𝘦 that.

Most people think:

“I don’t mind losing £2. The chance at millions is worth it.”
Fair enough. But if you 𝘥𝘪𝘥 win £13 million, would you realize you were actually underpaid by £77 million? The lottery relies on people focusing on the headline number, not what they should have won.

It’s not just the jackpot either:
Match 3 numbers: Odds = 1 in 96
Payout = £30
Fair payout based on the odds = £192

My dad is 𝘰𝘷𝘦𝘳 𝘵𝘩𝘦 𝘮𝘰𝘰𝘯 when he wins 30 quid. He's so happy he might even buy extra tickets that week. But if someone underpaid us by 85% in any other context we’d riot.

It's even worse in the US, the odds for the Powerball lottery are 𝟮𝟵𝟮 𝗺𝗶𝗹𝗹𝗶𝗼𝗻 𝘁𝗼 𝟭, and a ticket costs $2. So a fair jackpot payout would be $584m! But the starting jackpot is just $20m...that's just 3.5% of what a fair jackpot should start at!

Lotteries aren’t scams, they’re just framed in a way that convinces people to accept uneven odds. And maybe that’s the magic: buying hope, not a payout. Do I play the lottery? Occasionally, but only when the jackpot gets to the level of what I consider a fair payout...𝘢𝘯𝘺𝘵𝘩𝘪𝘯𝘨 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 $584𝘮 𝘫𝘶𝘴𝘵 𝘪𝘴𝘯'𝘵 𝘸𝘰𝘳𝘵𝘩 𝘨𝘦𝘵𝘵𝘪𝘯𝘨 𝘰𝘶𝘵 𝘰𝘧 𝘣𝘦𝘥 𝘧𝘰𝘳.

What do you think, are lotteries harmless fun or expensive fantasy?