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.