Massachusetts Lottery Broken

wiredog sends in a story about how knowledge of lottery rules and statistics has allowed opportunistic players in Massachusetts to spend hundreds of thousands of dollars on tickets while being assured of a massive payoff. Quoting: "Because of a quirk in the rules, when the jackpot reaches roughly $2 million and no one wins, payoffs for smaller prizes swell dramatically, which statisticians say practically assures a profit to anyone who buys at least $100,000 worth of tickets. During these brief periods — 'rolldown weeks' in gambling parlance — a tiny group of savvy bettors, among them highly trained computer scientists from MIT and Northeastern University, virtually take over the game. ... Srivastava calculated that a gambler who bought 200,000 Cash WinFall tickets during four rolldown weeks in a year would win enough to cover the $1.6 million investment and earn a profit of $240,000 to $1.4 million — without ever winning the jackpot."

Comments

Wait, what?

[Jeng]

I thought the lottery was for those who were bad at math?

Re:Wait, what?

[Thud457]

Apparently Massachusetts thought that meant people who are bad at math should be running the lottery. A critical mistake in the state that's home to Stanford.

Re:Wait, what?

[interkin3tic]

Really bad at math, don't care about the math, or are -really- good at math.

Re:Wait, what?

[MozeeToby]

Only for those who are bad at math if you ignore the fact that $100,000,000 is worth much more than 100,000,000 times $1; at least to people's mind's. That is, $1 has very nearly zero utility, while anything above a certain amount (say $10,000,000) has nearly infinite utility. Even a poor person isn't going to significantly miss $3 per week, but a large multimillion dollar payoff properly managed will leave a person set for life (or buy whatever a person could want for a limited amount of time). And it makes sense, the error is in trying to assign static value to a given value of money while the human brain (correctly) doesn't do that.

Re:Wait, what?

[Rising Ape]

It's really the other way round though. A jump in income of 100,000 to 200,000 is worth much less in terms of quality of life than from 10,000 to 20,000.

Re:Wait, what?

[Anonymous Coward]

Really?

My understanding is that this is the system working as intended. They don't want the jackpot to continually grow unchecked so when it reacher a certain size they pay out more on the smaller wins. My mother told me a similar story about older electronic slot machines. Basically the natural probability of winning was too low so they had to write a forced payout routine to make sure that the machines payed out the percentage of the time the casino's wanted (remember casinos want you to win often enough that you keep playing).

Re:Wait, what?

[HarrySquatter]

Good thing your specialty isn't geography. You're about 2600 miles off the mark for where Stanford resides.

Re:Wait, what?

[petershank]

during "rolldown week," the expected return of playing the game is positive. This is just as true for people who spend $3 as for people who spend $300,000.

The article said otherwise:

Mark Kon, a professor of math and statistics at Boston University, calculated that a bettor buying even $10,000 worth of tickets would run a significant risk of losing more than they won during the July rolldown week. But someone who invested $100,000 in Cash WinFall tickets had a 72 percent chance of winning

Re:Wait, what?

[erroneus]

Wait! I want to say it it!!!

Stanford is in California!!! Yay! I feel great now!

Also Sanford and Son is in California.... fun old TV show that was.

Re:Wait, what?

[jacks0n]

That comment is about variance, not expected value. EV/ticket is the same whether you buy one ticket or one million tickets.

Re:Wait, what?

[MoonBuggy]

There's no tax on lottery winnings in the UK, a country which is very similar to the US in many ways. I know the article is specifically about Massachusetts, but being so rude about what was, in fact, a quite reasonable assumption just makes you look like an asshat.

Re:Wait, what?

[Culture20]

When you're good at math, who cares about geography?

Re:Wait, what?

[Aquitaine]

A curious thing to consider, since the US is routinely cited as having some of the lowest effective taxes in the developed world,

Except for our corporate tax, which is among the highest in the world, and the fact that we tax earnings abroad (and most countries do not).

Our tax rates are lower than Europe's because our welfare state, while pretty heavily entrenched, is not as heavily entrenched as theirs. I think Russia might have a lower effective tax rate than we do on general income (and a flat tax? Can't remember).

Re:Wait, what?

[afidel]

Actually if you put the money in a 5% vehicle then lump sum vs 30 year payoff usually works in your favor, not to mention that some lotteries aren't assumable by your heirs which means they get screwed if you die before the end of the payoff period. Regardless of the hypotheticals your best bet if you win the big one is to contact an attorney and a certified financial planner who can do all that analysis and protection work for you.

Re:Wait, what?

[JordanL]

There is no "except". Do you understand what an effective tax rate is? It doesn't matter what parts or more or less... in fact that was the ENTIRE point of what I was saying: Americans, (your post being a prime example), are FAR too concerned with making sure that EVERY exchange of money is taxed, but we are accomplishing LESS through our taxation.

In addition, what we spend the money on is COMPLETELY irrelevant to discussing complexity of the tax code, or effective tax rates. I don't care if you us it to hand out cocaine laced ice-cream cones to everyone in a welfare program. It makes no difference to the discussion of how we are collecting the money and in what portions, and America's inability to discuss these things separately has continually harmed our country, our government, our economy, our corporations, and our political interests for over 20 years.

I wish I could make a personal plea to America in general: we are choosing to harm ourselves. How we fix that is something we can all provide different opinions for, but we are doing shockingly destructive things to our society, and we NEED people to at least agree on that. If we can't, we as a society deserve the ultimate march to obsolescence, poverty and chaos that we are currently on. No one gets a free lunch, right? So why are we as a society expecting our entire reality to give us one?

If you really want to talk about what is "heavily entrenched" in our society, it is the pervasive opinion that there are two kinds of people: those with whom we can commiserate on the ills of our society, and those that are responsible for the ills of our society. Our society is so fucking broken that we don't even consider actually identifying problems and fixing them, we're continually stuck in a cycle of blame and group-think.

Perhaps the most damaging part about this situation is that the people who break out of that cycle almost universally become disgusted with the people that constitute the majority, fall into incurable cynicism, and essentially take the position I described earlier: if these people around are intent on fucking things up this badly, maybe they deserve to live in the society they are creating.

Formula

[Toe, The]

1. Buy $100,000+ in lottery tickets
2. ???
3. Profit! ...but for real.

You all laughed when ....

[140Mandak262Jamuna]

Guys, you were all laughing when I bought the lottery tickets from Dogbert 50% off. He assured me that the odds of winning are just one one millionth less, but the price was 50%, count them full fifty percent off. You guys were taunting me for buying the previous day's tickets. Ha! Who is laughing now?

Oh I see

[JoshuaZ]

I see now. So as long as people have bad ideas about statistics it is ok. Believing some numbers are lucky is ok. Ignorant people saying things like "I haven't won and I've been playing for years, I have to win soon" is ok. Having people believe that God told them to buy a lottery ticket is ok. But when one someone actually has a chance to be correct about having a chance to win and make a profit then it isn't ok. Why don't the governments stop pretending. The lottery is intended on a tax for those who can't do math. And most of those people can't do math because the government schools failed to teach them. The government wants to use a lottery so it can get extra money from poor, uneducated people while pretending to have a progressive tax system which doesn't hurt the poor.

Re:Oh I see

[rubycodez]

that is false, plenty of people understand the math perfectly but play anyway. You don't understand the nature of three-quarters the people you meet (that's about the fraction of people who gamble at every place I've ever worked, and we're talking college educated people of median income of $85K currently)

Re:Oh I see

[Lemmy Caution]

Lotteries are played by most people as entertainment, not as investments.

Re:Oh I see

[MBGMorden]

Indeed. I've failed to see the "tax on the people who are bad at math" argument. Yes, the odds of winning are astronomically high. They are however, non-zero, and someone DOES eventually cash out on the jackpots. Deciding to take a gamble isn't stupid so long as you know and accept the odds.

If you go obsessive over it (ie, dumping loads of money into the lottery as a financial "plan"), then sure, but myself for example - my state has had the lottery for about 10 years now. In those 10 years, I've bought about 8 or so lottery tickets. So I'm spending less than a dollar per year on average. Still haven't won, and don't think I realistically ever will, but it's not too much of a financial burden to gamble away at a long shot (yes, a really, really LONG shot).

Basically, I go by the advice my dad taught me while playing cards - expect that you're going to lose every bet you ever make. If you're not ok with that outcome, then don't make the bet in the first place.

Same with progressive slot machines

[Anonymous Coward]

I used to code slot machines, hence staying anonymous. At some point, a different point for each bank of slots, the pay tables will reach over 100% payout if the jackpot is large enough. It was well known that by that point, professional gamblers and their buddies would squat on each machine tied to the progressive payout and play them until one of them hit the jackpot. The casinos didn't care, nor should they, because the overall pay table was still 95% or 90%. In other words they still made their money on the masses. But if you as an individual watch closely enough, in the short term you can make money.

Somewhat unrelated, there are also video poker machines that if played "perfectly" will earn you about $8 / hour statistically, although you may have to put in considerable hours before seeing the profit. Again it all depends on how the pay table is structured.

Re:Same with progressive slot machines

[Toe, The]

Somewhat unrelated, there are also video poker machines that if played "perfectly" will earn you about $8 / hour statistically, although you may have to put in considerable hours before seeing the profit. Again it all depends on how the pay table is structured.

Hm. $8/hour to play video games? Does sound better than flippin' burgers, but no real opportunity for advancement...

Bingo!

[Gription]

The point of the lottery is simply to make money for the state. There isn't any reason that it must be impossible to make money off of it unless that keeps the state from making money on it.

Re:Bingo!

[Anonymous Coward]

#2 is just incorrect. State lotteries exist because both to make money for the government and to eliminate unregulated lotteries. The History Channel had a program on lotteries and, IIRC, the first ones in the US were in Harlem and they were so crooked that there wasn't even a chance those running it (organized crime) would lose. They eventually developed a system where the winning lottery numbers were determined by the winning horses in a specific race, but even then people were able to relay that information to accomplices who placed bets. The whole thing was so profitable that there was a ton of violence between competing lotteries.

So the states created their own for 2 main reasons...to make revenue for the state and to head off much of the violent crime that had developed between those competing to fleece players. That the game was regulated and there was an actual chance to win was what made the state's version more popular than the unofficial options.

Re:That's what you get for exploiting your citizen

[shentino]

I'd rather the state grab it and put it to good use, rather than crooks grabbing it and putting it to uses that only benefit themselves.

For an ironic twist, if I was a governor, I'd create a lottery and put the proceeds into education :)

Re:wat?

[rbrausse]

15-87,5% profit. without risk.

they made an economical decision how to invest the 1.6M - and it is a very lucrative investion.

Re:That's what you get for exploiting your citizen

[i.r.id10t]

Thats what we did in Florida. All lottery funds are used for education.

Unfortunately they've cut *all* other funding sources for education... so sure since the late 80s the lottery has given over 10 billion to education... and the first few years were gravy... but now the lottery is the *only* funding source for education ...

not broken at all

[rubycodez]

"Broken" would mean the state was losing money. Your definition of "broken" needs fixed, you are jealous savvy people with enough money to invest can win at certain times

Winnings taxable?

[jayveekay]

"A lottery agent who sells tickets to the group said Tong’s Fortunelot invested $200,000 at his store in May and won $280,000."

The $200,000 investment would presumably be after tax money. The 280,000 dollars in winnings would be taxable. At the Bush Tax Cut marginal rate of 35% that would leave 182,000, for a net loss of $18,000. Presumably the bettors must also be finding a way to game the tax system as well.

Re:Winnings taxable?

[Thelasko]

A small detail from the fine article notes that all of these players buy the tickets on behalf of a corporation which they wholly own. Corporations pay taxes based on profits. Simply put, revenue minus expenses. They are likely writing off the cost of the tickets as expenses.

That would be $280,000 revenue - $200,000 expenses - $80,000x35%=$52,000 for three days of work.

Re:Winnings taxable?

[cdrguru]

If you hang around people with serious gambling addictions you would know that this isn't just some corporate tax dodge. If you have proper documentation about gambling wins and losses you, and individual, can deduct your gambling losses.

This means that if you drop $50,000 at the craps table one night you can indeed deduct that against your $100,000 winnings the next night. I do not believe gambling losses can offset any non-gambling income.

Of course, you need to have all of this properly documented. It generally isn't all that hard to sort out how much you leave at the casino, though. Proving it make take some work with an accountant, however.

Relevant comic

[naroom]

http://www.smbc-comics.com/index.php?db=comics&id=2320