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Friday, January 14, 2005

Economist engages in irrational consumption?

Yep, I did it this morning. Buying the morning coffee I asked the clerk to give me two quick picks for tomorrow night's lotto drawing. Okay, so we are already in the world of the second best if Depken is buying lottery tickets, but remember De gustibus non est disputatum (there's no accounting for taste)!!

The clerk asked me if I wanted my picks for the Mega Millions drawing and I immediately said "No, Lotto Texas." Immediately after saying that I opined out loud that it really didn't matter because I wasn't going to win either lottery - why should I have a preference for one over the other. Notice that I had no idea of the jackpots or even how many numbers are involved in Mega Millions, I just chose Lotto Texas. In essence, I revealed my preference to myself.

Anyway, the lady standing at the counter counting out stacks of four from her baggy full of quarters asked me why I would play the lotto if I wasn't going to win. I then suggested that I knew I wasn't going to win if I didn't play, but my two quick-picks gave me a shot at least (I know, the second quick pick was overkill but I justify it by giving the second number to Baby Campbell and the first number to Linda and I).

I didn't go on to explain to her that spending fifty dollars on lotto tickets wasn't the best use of at least 49 of them, but then again I am a big fan of De Gustibus.

So, was my gut reaction a good one? Other than the ex post justification that the Lotto Texas dollars go to the Texas Education Fund and Mega Millions contributions are split amongst a number of states, I really didn't have a good reason for picking Lotto Texas other than having never played Mega Millions (fear of the unknown?). I got to the office and checked out the two lottos.

Mega Millions is a 5+1 format with numbers from 1-52. The first five numbers are chosen without replacement and without ordering, the last ball is chosen from 1-52. Odds of matching all six numbers is 1 in 114,354,240. The current jackpot is $111 million. Assuming that I would win the whole shooting match (a stretch, I know, because you might have to share the pot) the expected dollar value of the ticket is $0.971.

Texas Lotto is also a 5+1 format with numbers from 1-44. The odds of matching all six numbers here is 1 in 47,784,352. Tomorrow's jackpot is $46 million yielding an expected value of the ticket (assuming again I was the only winner) of $0.963.

Going with only the expected dollar value of the ticket, I should have gone with the Mega Millions, but not by much. I do get some consumption value out of firing up the computer and seeing how many numbers I didn't match from the previous night's drawing. I would put the consumption value somewhere near $0.50 for the entire deal. But this would be true for either lottery. Therefore, while I have lost a little by buying into Lotto Texas, I am not losing too much, and I can sleep well knowing that my irrational behavior has added about $1 to the Texas education fund.

I don't think the lottery is necessarily a tax on stupidity - after all your odds of winning increase infinitely when you buy your first ticket - although some people probably spend a little more than they "should" just like people eat a few more french fries than they should. As long as you aren't betting the mortgage or the baby food money, have at it.

It was an interesting experience, however, to discover that I actually do have a preference for Lotto Texas when I didn't realize that before this morning.

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