Risk-reward
Friend: … which is why they say the lottery is a tax on people who are bad at math.
Joshua: But that’s not quite true. The expected return is less than 50%, yes, but the distribution is extremely skewed. In terms of risk-reward, most people can spend a dollar without thinking much about it — and the possible return is enormous.
Friend: But the people who buy lottery tickets usually aren’t spending a dollar. They are spending twenty or forty dollars, and usually they are the people who can least afford it.
Joshua: I agree, that’s irresponsible. But for $1, people could take it out of their entertainment budget, not their investment budget. Some people really enjoy the rush of waiting for the numbers to be called.
Friend: [huge 'gotcha' grin] Do you play the lottery?
Joshua: No, of course not. That would be ridiculous.
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September 18th, 2009 at 13h58
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