The Value of Money

[Vlad Dobrich]

I am starting this thread as an offshoot of the US Presidential thread where a discussion of money and lottery wins was initiated.
First, to reiterate the argument against gambling. When two people gamble where there is no house rake, the money total after a win is less than the amount the two started with. How is that possible? For the answer, we turn to economics - the law of marginal utility.
If you and I each have $1,000 to our name, and one of us loses it all to the other, the utility of the $1,000 won is far less than what was lost by the loser.
Thus if I lost my last $1,000, I have no money left to pay rent, buy food and pay bills (for which I may now be penalized - a fraction of the amount owing may be added to next months bill. I may now be willing to borrow a $1,000 from a loan shark and have to repay say $1,200 next month. Therefore when I lost $1,000, my cost was in fact $1,200.
Meanwhile the winner of my $1,000 has the extra money which is not as valuable as his initial $1,000.
Now let's look at the lotteries. Some months ago I sent an email to Lotto Ontario suggesting that instead of drawing one winning ticket for $50 million, they draw 100 tickets and invite those 100 to a finalist draw at the Royal York hotel for dinner after which the 100 tickets are placed in a bowl and the grand winner drawn for the $50 million. As for the other 99, "Thank You for playing Lottario, and better luck next time!"
However! Before the final Grand draw, each of the 100 ticket holders is offered $490,000 cash for their ticket. And in the event that one person holds out and says "No, I want a chance to win the $50 Mil. Well no problem, the hold-out ticket is placed in a bowl with 99 blanks and the hold-out still has the same chance at the Grand Prize, ie 1/100.
The argument for the above scenario is that far more social good would be achieved when 100 people walk away with $490,000 than in the case where one person wins $50 million. In other words, 100 happy people walk away with enough to pay off their mortgage, pay all their debts, pay the tuition to send the kids to college, etc. - that is instead of one person having
$50 Mil they won't know what to do with and who will be hounded by friends and relatives for a piece of the pie.
Finally, the Lottery people save $1 million as they only pay out $49 M (assuming there is no hold-out). And there is no loss to the Lottery with publicity and interest, as the final dinner and Grand Draw can be televised for even more publicity.

[Ed Seedhouse]

Re: The Value of Money

Of course every lottery is objectively a poor bet. As you say the house always wins. But that ignores something else that has value. I enjoy imagining the wonderful things I would do with a big lottery win and it provides me with hours of enjoyment. Of course it's pure fantasy and if I actually won it would probably turn me into a rather nasty (or perhaps nastier) person but, fortunately the odds are so stacked against me that this eventuality is unlikely to come to pass and so I can discount it. So for my three bucks I get hours of fun pretending I am a rich philanthropist admired by everybody. And that's entertainment, which is actually what I get for my three bucks and I consider it worth that much.

[Kerry Liles]

Re: The Value of Money

Of course every lottery is objectively a poor bet. As you say the house always wins. But that ignores something else that has value. I enjoy imagining the wonderful things I would do with a big lottery win and it provides me with hours of enjoyment. Of course it's pure fantasy and if I actually won it would probably turn me into a rather nasty (or perhaps nastier) person but, fortunately the odds are so stacked against me that this eventuality is unlikely to come to pass and so I can discount it. So for my three bucks I get hours of fun pretending I am a rich philanthropist admired by everybody. And that's entertainment, which is actually what I get for my three bucks and I consider it worth that much.

Many (if not all) people buy lottery tickets based on hope and the observation that (usually) SOMEONE has to win.
Hope might also be worth $3. Of course, I concede that $n may be more important to some people than others...
when n=3 it seems like a trivial amount (to me), but I'll bet $3 is rather precious to a homeless person.

Lotteries were designed to appeal to the mathematically impaired and that is a rather large subset of the population.

[Peter McKillop]

Re: The Value of Money

I am starting this thread as an offshoot of the US Presidential thread where a discussion of money and lottery wins was initiated.
First, to reiterate the argument against gambling. When two people gamble where there is no house rake, the money total after a win is less than the amount the two started with. How is that possible? For the answer, we turn to economics - the law of marginal utility.
If you and I each have $1,000 to our name, and one of us loses it all to the other, the utility of the $1,000 won is far less than what was lost by the loser.
Thus if I lost my last $1,000, I have no money left to pay rent, buy food and pay bills (for which I may now be penalized - a fraction of the amount owing may be added to next months bill. I may now be willing to borrow a $1,000 from a loan shark and have to repay say $1,200 next month. Therefore when I lost $1,000, my cost was in fact $1,200.
Meanwhile the winner of my $1,000 has the extra money which is not as valuable as his initial $1,000.
Now let's look at the lotteries. Some months ago I sent an email to Lotto Ontario suggesting that instead of drawing one winning ticket for $50 million, they draw 100 tickets and invite those 100 to a finalist draw at the Royal York hotel for dinner after which the 100 tickets are placed in a bowl and the grand winner drawn for the $50 million. As for the other 99, "Thank You for playing Lottario, and better luck next time!"
However! Before the final Grand draw, each of the 100 ticket holders is offered $490,000 cash for their ticket. And in the event that one person holds out and says "No, I want a chance to win the $50 Mil. Well no problem, the hold-out ticket is placed in a bowl with 99 blanks and the hold-out still has the same chance at the Grand Prize, ie 1/100.
The argument for the above scenario is that far more social good would be achieved when 100 people walk away with $490,000 than in the case where one person wins $50 million. In other words, 100 happy people walk away with enough to pay off their mortgage, pay all their debts, pay the tuition to send the kids to college, etc. - that is instead of one person having
$50 Mil they won't know what to do with and who will be hounded by friends and relatives for a piece of the pie.
Finally, the Lottery people save $1 million as they only pay out $49 M (assuming there is no hold-out). And there is no loss to the Lottery with publicity and interest, as the final dinner and Grand Draw can be televised for even more publicity.

I like your idea but I don't follow the math. If there is one holdout, wouldn't s/he be playing for $1,490,000? - the amount left in the prize pool after 99 people each take $490,000?

[Vlad Dobrich]

Re: The Value of Money

I like your idea but I don't follow the math. If there is one holdout, wouldn't s/he be playing for $1,490,000? - the amount left in the prize pool after 99 people each take $490,000?

Right. You don't understand what I'm saying. The buyout money comes from the Lotto bank general funds, not from the $50 M pool. The $50M is always there to be won should anyone of the ticket holders want to shoot for it. You made the wrong assumption that the buy-out would reduce the $50M prize.

[Peter McKillop]

Re: The Value of Money

Right. You don't understand what I'm saying. The buyout money comes from the Lotto bank general funds, not from the $50 M pool. The $50M is always there to be won should anyone of the ticket holders want to shoot for it. You made the wrong assumption that the buy-out would reduce the $50M prize.

Finally, the Lottery people save $1 million as they only pay out $49 M (assuming there is no hold-out). And there is no loss to the Lottery with publicity and interest, as the final dinner and Grand Draw can be televised for even more publicity.

Okay. So the potential maximum pay out (ignoring junior prizes and encore) would be $98,510,000. That's a lot of extra money for OLG to kick in from general funds. I still like your concept but to convince me you'd have to demonstrate that OLG would be no worse off financially than they are under the current prize structure. A no-no would be the case where OLG had to borrow from the government's general tax revenues to fund one of your proposed super-sized payouts.

[Vlad Dobrich]

Re: The Value of Money

Okay. So the potential maximum pay out (ignoring junior prizes and encore) would be $98,510,000. That's a lot of extra money for OLG to kick in from general funds. I still like your concept but to convince me you'd have to demonstrate that OLG would be no worse off financially than they are under the current prize structure. A no-no would be the case where OLG had to borrow from the government's general tax revenues to fund one of your proposed super-sized payouts.

I don't know where you get these ideas - ideas which you put forth as reality. The OLG NEVER has to borrow from the Province. They skim something in the order of 50% of ticket sale revenues and hold it aside until all claims have been satisfied, and only then contribute to the groups and sporting organizations which they support.
Secondly, they're playing the numbers game. Presumably they have actuaries who are capable of working out the odds of an event occurring.
The event which seems to concern you is - what if the very first time that the Grand $50 Mil Prize is to be drawn, there is one hold-out AND that ticket wins. OLG is then on the hook for the 98.5 Mil pay-out. That would only make that particular lottery event into a zero profit exercise. They then go on to the next one.
But the odds of there being one hold-out and winning the first time is very small indeed. How many people would be willing to gamble $490,000 on a 100 to 1 bet to win $50 Mil? Do you know of any such person? And even if there was such a person, it takes 67 tries until he is 50/50 to hit the 100 to 1 shot. So that means the OLG scoops $66M before they are likely to have to pay out the extra $50M.
It is all a numbers game where the odds are all against the players. My proposal is an attempt to create 100 winners instead of the current lop-sided formula where one person walks off with more money they know what to do with.

[Vlad Dobrich]

Re: The Value of Money

And, if anything, I have understated the profit of the OLG.
For example, in cases where the top prize is announced as $50M, then secondary prizes will also add up to $50M for a total payout of $100M.
And that means that OLG has raked off $100M from the ticket sales. And in the worst case scenario, where they must pay out an extra $50M, their profit is 'only' $50M. They must then cry in their beer.
And THAT is why privately run, non-charity lotteries are ILLEGAL. It's just too good as a monopoly to give up that status. The government does not want the competition.

[Dilip Panjwani]

Re: The Value of Money

Our joke of a 'governance' system prides itself in income-redistribution by robbing thousands of wealth-generating Peters to pay millions of not so wealth-generating Pauls....and then engages itself in reverse income distribution by taking away from millions of unlucky Toms to pay a single lucky Harry....

[Ed Seedhouse]

Re: The Value of Money

Our joke of a 'governance' system prides itself in income-redistribution by robbing thousands of wealth-generating Peters to pay millions of not so wealth-generating Pauls....and then engages itself in reverse income distribution by taking away from millions of unlucky Toms to pay a single lucky Harry....

There is some truth in this, of course. Lotteries are basically a tax on stupidity. But it also ignores other important factors such as the simple fact, like it or not, that people like to gamble and they *will* gamble no matter what the government does. Government has a place by giving them their gambling fix in a less harmful way. At least the profits will go to charities, not crime bosses, and the odds won't be quite as ridiculous. Too bad many governments are tempted to encourage gambling further to fund themselves, but even so I think they do less harm than letting the Mafia or some other criminal syndicate to reap *all* the profits. Outlawing gambling doesn't stop gambling. Government lotteries, at the best, are a form of judo where the unfortunate impulse to gamble is skillfully redirected to less harmful things.

[Garland Best]

Re: The Value of Money

Government has a place by giving them their gambling fix in a less harmful way. At least the profits will go to charities, not crime bosses, and the odds won't be quite as ridiculous.

Amount taken by the house in Vegas for every dollar gambled: 5 to 10 cents, depending on the game.
Amount taken by government lotteries for every dollar gambled: 50 cents.

[Rene Preotu]

Re: The Value of Money

It looks like the OLG is trying to reinvent itself

http://www.modernolg.ca/article/olg-...modernization/

http://www.modernolg.ca/where-does-the-money-go/

[Vlad Dobrich]

Re: The Value of Money

Thanks for the link Rene. I have sent my proposal to OLG. I did not get a response several months ago when I sent the idea to OLG but possibly to a wrong destination. And that missive may have ended up in some Span file. :(

[Ed Seedhouse]

Re: The Value of Money

Amount taken by the house in Vegas for every dollar gambled: 5 to 10 cents, depending on the game.
Amount taken by government lotteries for every dollar gambled: 50 cents.

Point taken, but at least the Government puts the money towards something generally useful instead of lining the pockets of criminals. I generally oppose the expansion of current government gambling programs and think they should stick to a simple straightforward lottery. B.C. is, in my opinion, a terrible example of government run gambling gone wrong. I don't know much about how other jurisdictions run it.

[Paul Bonham]

Re: The Value of Money

Point taken, but at least the Government puts the money towards something generally useful instead of lining the pockets of criminals. I generally oppose the expansion of current government gambling programs and think they should stick to a simple straightforward lottery. B.C. is, in my opinion, a terrible example of government run gambling gone wrong. I don't know much about how other jurisdictions run it.

Nobody has yet mentioned the social impact of lotteries: namely, that they discourage (to some degree) people from working hard to earn wealth. In this respect, I think lotteries are un-American. But American state governments still sponsor lotteries in a major way because the proceeds help pay the bills. Does anyone see the irony in this? "Everyone work hard towards the American dream.... oh, and here's some lottery tickets for all you poor people to chase after a totally different dream.... to help us out because we spent more money that we took in via stealing it from your paychecks."