A $640 Million Lottery Jackpot and a Lot of “Skewness”

The press and the streets in the U.S. are buzzing today about the world record $640 million lottery jackpot that will be drawn tonight at 11pm in Atlanta, GA. 

This excitement is an example of what economists call “skewness.” The odds of winning have been quoted as 175 million to 1 — yet all of us are hoping to be that one. We explained the irresistible appeal of skewness (and the lottery) in our Freakonomics Radio podcast “The No-Lose Lottery.” In that episode, we also introduced a new financial product called Prize-Linked Savings accounts — an idea that utilizes skewness to encourage saving. We also explained why lottery commissioners would probably hate it.

Stephen Dubner explained on CBS This Morning why we love the lottery so much:

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  1. win or lose .... says:

    My husband keeps on bugging me about buying a ticket. I mean what are the odds of winning two different lottery’s at once? Almost nil. so I guess we all should be a bit optimistic. Don’t play these numbers 246810. Reminds me of an experience I had lately. Told a woman in a dressshop that I liked the dress that she was trying on and of course she immediately bought it.

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  2. Tony says:

    I love how Dubner says, basically, don’t play the lottery, and then they go into a long discussion about how to pick numbers.

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  3. That Guy says:

    The video says $540 Million, the blog post says $640. Well…which is it?

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  4. Dana C. says:

    Hidden due to low comment rating. Click here to see.

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  5. Larry Zamora says:

    I don’t play the lottery, mostly because of the lousy odds and because I don’t actually need hundreds of thousands or millions of dollars to be happy. Don’t get me wrong, if such a sum were to magically fall into my lap, I obviously wouldn’t turn it down. On the other hand, I would buy a ticket every week if I knew that 10,000 people in my state were each going to win say, $20,000. The odds are way better, and the potential windfall would make a significant and positive impact on my monthly budget. Could such a lottery be successful?

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    • MW says:

      I don’t gamble on the lottery, but occasionally I play what I call ‘inverse lottery’. It goes like this: Pick your lottery numbers. Do NOT buy a ticket. Watch the lottery draw. If your numbers come up, you just lost $640 million (or whatever the prize would be.) If your numbers don’t come up, you just won $5 (or whatever the ticket would have cost.)

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    • Enter your name... says:

      The potential windfall from such a “lots of small winners” lottery would make a significant and positive impact on lots of people’s monthly budgets, and it wouldn’t have the catastrophic effects that these million-dollar payouts have on people’s social relationships.

      If you win ten or twenty thousand dollars, or even fifty thousand, you keep your job, your home, your friends, and so forth. Everyone congratulates you and commiserates with you about how little you’ll actually be able to buy after taxes. You tell them about the new car you’re planning to buy or the vacation you’re planning to take or the fact that you’ll be able to pay off the credit card bill finally, and that’s the end of it.

      If you win millions of dollars, you make rash choices, like quitting your job and moving to a McMansion, which disrupts your social relationships. Everyone is jealous and greedy: you’ve got so much, so why don’t you share just a little with me? That multi-million dollar payout would be just the thing to re-roof the church, or buy me a car, or pay my medical bills, or pay for the entire extended family to go on vacation (nevermind that you’ve always felt like we disliked you: we’ve always loved anyone with millions of dollars that they might shower on us), or bankroll my latest business venture, and you’ve got so much that you’ll hardly miss the money.

      Big lottery winner often end up poor in both money and friendships. If a drug had this many bad side effects, it would be illegal.

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  6. Dave D says:

    I love how in the report, even after the evidence that it is massively unlikely to win, the reporters focus on eventualities of winning, like hiring a lawyer and a financial adviser, and picking numbers higher than 31 as a strategy. I think they missed the point.

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  7. Jeff light says:

    If the odds are really 175 million to 1 with a payout of 640 million, I’m not sure this is an example of skew. One need only buy one ticket for each of the 175 million possible combinations to guarantee a return of $465 million.

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    • Nick says:

      That’s not really true if you consider the chances of splitting the jackpot with someone else, taxes, the reduced jackpot if you take a lump sum, or the time value of money if you take the annuity.

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  8. DrTocToc says:

    Doesn’t the ticket cost $1? Given the odds, for someone who’s not risk averse, playing the lottery when the jackpot is over 175 M$ is rational?

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