Powerball Tickets: A good or bad investment at a $1.4 billion jackpot?

States with Lotto

We’re seeing alot of people getting excited about the now $1.4 Billion jackpot – and have even seen some folks who’ve never played the lottery before buy tickets for the first time!

However – even with the huge jackpot – is it a worthwhile buy?

Business Insider took a look at the probabilities of winning with a $450mm jackpot earlier this month and concluded a resounding “NO”- but with the jackpot at TRIPLE the previous analysis – have things changed?  Let’s take a look:

Powerball Probabilities - For 1.4 Billion Jackpot

Powerball Probabilities – For 1.4B Jackpot

Probabilities from:
http://www.powerball.com/powerball/pb_prizes.asp


As one can see:

  1. In theory, the expected value of the ticket is high enough such that it’s worth buying if one were to win and collect as an Annuity. (Table 1)
  2. As shown in the second table, if one were to take the jackpot as a lump sum, the expected value is less than the $2 ticket cost, making this a non-starter.
  3. However – with the added effect of taxes (say, a nominal 50%) – our expected value falls drastically – regardless if we choose lump sum (or not) – as shown in tables 3 and 4.

TL;DR / Bottom line: even at $1.4 Billion, the expected value makes this a terrible “investment.”  It’s certainly fun entertainment, but we recommend saving your money and keeping the long course for long term financial happiness 🙂