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 1.4B Jackpot
Probabilities from:
http://www.powerball.com/powerball/pb_prizes.asp
As one can see:
- 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)
- 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.
- 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 🙂
Good conclusion !