Chuck Jaffe: Big lottery jackpot? Be in it, not to win it
BY CHARLES JAFFE Market Watch
Wednesday, April 11, 2012
4/11/12 at 3:16 AM
Before we close the book on the $600 million MegaMillions jackpot that made national headlines recently, consider the following scenario:
Since we were kids, we've gone to a wishing well, thrown money in, given a thought to our fondest dreams and then hoped for the best.
What we have never done is throw money in, make a wish, then throw more money into the pot to make the exact same wish all over again.
The lottery becomes the wishing well for many adults, who throw their money in the pool and hope for something that will change their lives and give them virtually everything they've wished for. That's particularly true when the biggest lotteries have jackpots north of $200 million.
On entertainment and discussion value alone, buying a lottery ticket with a half-billion-dollar jackpot on the line may be worth the investment of a dollar.
Buying a second ticket, however, is like making the same wish again for the same money.
Behavioral-finance studies show that investors don't get the same thrills and energy from their additional purchases. That's why the second lottery ticket you purchase for a giant jackpot is a lousy way to invest your hard-earned money.
Few people view the lottery as an "investment," but it's an outlay of money with the hope of a return, so, technically, it qualifies. That's also why many people don't play the lottery until the big jackpot crosses $175 million. With the odds of winning Powerball or MegaMillions standing at roughly 175 million-to-1, some folks think that would be when the numbers on a ticket are worth the chance.
I'm no fan of lotteries and have never bought a ticket myself, but I'm not trying to be a kill-joy; while I would say throwing money to the lottery is a bad investment in general, it becomes a tax on people who are bad at math once it rises above the basic buy-in.
Sadly, that's why lotteries in general tend to draw a lot of money from the people who can least afford to waste their cash.
Lottery-ticket buyers note that there's the excitement of being in the game and the energy they get from indulging hope that they will be the lucky person to win. And with workplace pools there's also the social benefit that comes from all of the fun discussions, and from simply not being the party pooper.
There's no denying those positives. Further, there can be very real personal benefits to using the hope that comes with playing a big lottery to set financial priorities, to recognize which burdens you most want to be out from under and to organize and set a course of action for some future windfall.
The ordinary person isn't coming into money to the tune of the grand prize, but many people get a big tax refund, an inheritance or other sudden money; what-if lottery games can help them figure out how to make the most of that money without simply blowing it.
If the benefit of the lottery comes from the rush and the hope, then recognize that you don't get twice the excitement when you buy a second ticket, and you certainly don't get 20 times the rush of playing when you throw $40 into the pot.
"You get the thrill from the first ticket, but after that the thrill is gone," said Donald MacGregor of MacGregor-Bates Inc., a firm in Eugene, Ore., that studies consumer and investor decision-making. "You get the excitement of betting on the long shot with the first dollar, but the next one is a big step down; your value in buying more than one ticket is psychological, in that you somehow feel like you are more in the game.
"But when the odds are 1 in 175 million, you're not really in the game because you buy 10 or 20 tickets; your chances of winning don't improve substantially, and because you got the excitement of being in the game with the first ticket, the rest of them are where you are throwing your money away."
Chuck Jaffe, senior columnist for MarketWatch, can be reached at cjaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070.
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