The Breakdown | Explaining Southern California's economy
Business & Economy

Trackback: Mega Millions hits $640 million, Lottomania ensues

The odds make no sense. But then again, you could consider playing the lottery a
The odds make no sense. But then again, you could consider playing the lottery a "black swan" investment.
Justin Sullivan/Getty Images

The Mega Millions lottery jackpot is now up to $640 million (the "cash option" is $462 million). That's...$420 million more than than last time I reposted on why you should or shouldn't play the lottery, earlier this month. (And that was $100 million more than the time I wrote the original post.) The nation — at least the parts where you can play Mega Millions — is in a frenzy. "The Patt Morrison Show" did segment today on how to deal with the many millions you'll win if you pull the winning ticket.

Soooo...I'm reposting this for the third time, just in case you're on the fence about buying a ticket for tonight's drawing:

The California lottery's Mega Millions jackpot is up to $100 million [Ed: Man, DeBord, that was chump change!] (Mega-Millions is actually a multi-state lottery, an aggregate of 42 lotteries). That's a pretty nice chunk of change and should bring out many more players, even infrequent ones — and even ones who never play. What we're talking about here are the people who understand the odds against winning. So why would they change their minds, simply because the jackpot has crossed a threshold?

For starters, you have to understand why these folks don't play. The site Strange Loops explains:

Odds of winning big are less than the ratio of ticket cost to amount won. If $1 has a 1 in 1-billion chance of netting you 500 million dollars, it’s a really bad deal. Why?

Let’s say you could play the lottery over and over and over again an unlimited number of times. After a trillion plays, on average you’d win about 1000 times (roughly once every billion draws). That’s 1000 x $500 million = $500 billion won, but you’ve spent a trillion ($1000 billion) to play. So you’ve wasted a lot of money in the long run. Even if the chances of winning are closer to the cost and win amount ratio, if the odds are lower than the cost and win amount ratio, then it’s generally a bad deal.

So traditional economics says not to play the lottery.

I know all this, but when the jackpots get seriously large, I start to think about playing. 

Here's why. I figure I'll only play once. One shot at, in this case, $100 million. The number is pretty much a psychological trigger. But it fits into my philosophy of waiting for numbers to become very large, in term of relative payoff or output, before I'll commit even very small inputs. In this case, $1. 

According to the California Lottery, the odds of winning the Mega Millions jackpot are 1-176 million, but I think that's actually based on the game when the jackpot is lower than it is now. 

My understanding is that I have a better statistical chance of being struck by lightning, several times, than I do of beating the Mega-Millions odds. But think about it. I play once. For $1. If I win, I win so astronomically big that I become a statistical anomaly, an extreme outlier, a Black Swan event. Because I never play. Except under very rare circumstances. As I told a colleague, I'm looking for some between luck and divine intervention. 

There are whole investment vehicles set up to profit from Black Swan events. But they require much more care and feeding, not to mention money. But with the $100 million Mega-Millions jackpot, I can buy into a Black Swan for $1. Someone will win, at some point in the upward curve of the jackpot. Knowing that, for me the only question is when to deploy my capital. Otherwise referred to as a buck. I can do this with loose change. 

As you can imagine, if I do win, the amount of satisfaction I will derive — a kind of intangible Black Swan — will be completely off the charts. If I don't, well...the odds already overwhelmingly predict that I won't. So in the end, I'm really just pitting ridiculous opportunism against ridiculous odds. 

I'll let you know how I do.

Follow Matthew DeBord and the DeBord Report on Twitter.