Comments on: Optimal Strategy for State Lotteries http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/ Learning and sharing investment knowledge. Thu, 04 Dec 2008 18:28:47 +0000 http://wordpress.org/?v=2.0.4 by: Jason http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-1997 Mon, 10 Jul 2006 16:17:06 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-1997 Mark. I'm sorry to say that I can't help you figure out a simple formula. While the scheme described in the article above will improve your chances while playing the lottery, it is only by a VERY VERY SMALL amount. And even then, the lottery is still a losing game (meaning in the long run you will always lose at this game). The main point you should take away from this article is that you should never play the lottery to make money. Remember, the optimal strategy is to play an amount that is negligible to you. The lottery is one of the worst ways you could gamble. For instance, in a game like Roulette the house's "edge" is 5.26%. Meaning for every $100 you bet, you lose on average $5.26. The state's edge in a typical daily lottery is 50%. So for every $100 you play, you lose on average $50. Playing the lottery is about 10x worse than playing Roulette. Here are some more detailed calculations... The payout for the 3 number lottery is $500. However, you only have a 1-in-1000 chance of winning. So if you play 1000 times, costing you $1000, you will win on average $500. This is a total loss of $500. Now if your friend is playing a large amount, he may be winning more regularly, but he is for sure losing overall. The same would apply for the 4 number lottery. I would suggest that you take a serious look at Gambler's Anonymous. Gambling addictions are very real. Gambling is not bad by itself, but if your gambling is affecting your life in a negative way (either monetarily or by affecting your relationships), you may need help. Below is the link to the GA website. I encourage you to at least take a look. http://www.gamblersanonymous.org/ Now if you don't have a gambling problem and want to gamble, but want a chance to actually make money, I would suggest that you move to a game like poker or sports betting. With these games it is possible to have a positive edge (since you are betting against other players rather than a state or casino which is rigging the game to ensure a profit for them). With poker for instance, you could get to a situation where you are making > $1000 for every $1000 you bet (rather than the $500 the lottery is paying out). This is the basis for professional gambling. http://twoplustwo.com is a great website for reference about poker and other forms of gambling. I would recommend the books by David Sklansky, including Theory of Poker. Take a look at it. If the math seems to complicated, other books by those authors like "Getting Started in Hold 'em" and "Winning Small Stakes Hold'em" by Ed Miller are a great place to start. On a related note, investing in stocks, either long term or day trading, is a kind of informed gambling. You never know exactly where a stock's price is going to go, but you can make informed decisions that lead to a positive return. I'd say good luck now. But I wouldn't want to encourage you ;) Let us know how things turn out. Mark. I’m sorry to say that I can’t help you figure out a simple formula. While the scheme described in the article above will improve your chances while playing the lottery, it is only by a VERY VERY SMALL amount. And even then, the lottery is still a losing game (meaning in the long run you will always lose at this game).

The main point you should take away from this article is that you should never play the lottery to make money. Remember, the optimal strategy is to play an amount that is negligible to you.

The lottery is one of the worst ways you could gamble. For instance, in a game like Roulette the house’s “edge” is 5.26%. Meaning for every $100 you bet, you lose on average $5.26. The state’s edge in a typical daily lottery is 50%. So for every $100 you play, you lose on average $50. Playing the lottery is about 10x worse than playing Roulette.

Here are some more detailed calculations…

The payout for the 3 number lottery is $500. However, you only have a 1-in-1000 chance of winning. So if you play 1000 times, costing you $1000, you will win on average $500. This is a total loss of $500. Now if your friend is playing a large amount, he may be winning more regularly, but he is for sure losing overall. The same would apply for the 4 number lottery.

I would suggest that you take a serious look at Gambler’s Anonymous. Gambling addictions are very real. Gambling is not bad by itself, but if your gambling is affecting your life in a negative way (either monetarily or by affecting your relationships), you may need help. Below is the link to the GA website. I encourage you to at least take a look.

http://www.gamblersanonymous.org/

Now if you don’t have a gambling problem and want to gamble, but want a chance to actually make money, I would suggest that you move to a game like poker or sports betting. With these games it is possible to have a positive edge (since you are betting against other players rather than a state or casino which is rigging the game to ensure a profit for them). With poker for instance, you could get to a situation where you are making > $1000 for every $1000 you bet (rather than the $500 the lottery is paying out). This is the basis for professional gambling.

http://twoplustwo.com is a great website for reference about poker and other forms of gambling. I would recommend the books by David Sklansky, including Theory of Poker. Take a look at it. If the math seems to complicated, other books by those authors like “Getting Started in Hold ‘em” and “Winning Small Stakes Hold’em” by Ed Miller are a great place to start.

On a related note, investing in stocks, either long term or day trading, is a kind of informed gambling. You never know exactly where a stock’s price is going to go, but you can make informed decisions that lead to a positive return.

I’d say good luck now. But I wouldn’t want to encourage you ;) Let us know how things turn out.

]]> by: Mark Hulme http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-1975 Sun, 09 Jul 2006 20:29:04 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-1975 Hi I have a problem. Its going to the local gaming facility and spending 100.00 to 200.00 per time and I am tired of losing it all. I have a former friend who plays only 3 of 4 lottery and he hits more often than you would think. At least 8 times per month. He gambles big. The other problem is to find a simple way of playing because Im not good at math. Given example of my knowledge the furthest i can go is fractions or decimals but not fractions into decimals. The state im from is R.I. and they have the lottery 7 days a week at 7pm. I would like to play but dont know how to break it down to a formula. If I can only play 3 instead of 4 the payout is 500.00 per game and if i can hit that 3-4 times a week that would be better than sex. Can you help me figure a simple formula ? Thanks Mark Hi I have a problem. Its going to the local gaming facility and spending 100.00 to 200.00 per time and I am tired of losing it all. I have a former friend who plays only 3 of 4 lottery and he hits more often than you would think. At least 8 times per month. He gambles big. The other problem is to find a simple way of playing because Im not good at math. Given example of my knowledge the furthest i can go is fractions or decimals but not fractions into decimals. The state im from is R.I. and they have the lottery 7 days a week at 7pm. I would like to play but dont know how to break it down to a formula. If I can only play 3 instead of 4 the payout is 500.00 per game and if i can hit that 3-4 times a week that would be better than sex. Can you help me figure a simple formula ? Thanks Mark

]]> by: Chris http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-600 Wed, 17 May 2006 20:17:33 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-600 Okay, didn't know you could pick your numbers. Interesting... I wonder why PA did that? Okay, didn’t know you could pick your numbers. Interesting… I wonder why PA did that?

]]> by: Jason http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-588 Wed, 17 May 2006 13:42:33 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-588 When you play the lottery, you can choose your own numbers. Or you can ask the computer to pick some random numbers for you. However, the machines are smart enough to pick different numbers for each ticket if you ask for more than one. So if I bought 3 tickets for a 3-number lottery, I would get one ticket for 1, one ticket for 2, and one ticket for 3. If I was getting a random number every time, you are correct that the chances would be the same. But then there is no point in buying more than one ticket with the same number... of course it really depends on how the payout is structured. Is it the same amount no matter how many tickets win (like a daily lottery with 4 digits) or is it one payout that gets split (like the Big 5)? I was just trying to prove the point that your chances are better (although slightly in real life cases) if you buy all your tickets on one day rather than over a period of time. So I avoided these issues. All of these are really good questions though, and they bring more to mind. Like: - So obviously you'll do better in the 3-number lottery if you buy more than 70% of the numbers. What would happen if you bought 2 tickets per day in a 5-number lottery instead of 1 ticket per day? Is that a better strategy? I don't have time for the math now, but I would guess yes. - Even in the Big-5 style lotteries, you could buy more than one of the same number. Though it's not optimal, if you were worried that there would be a split pot, you would get a larger piece of the pie if you had more than one ticket with the winning number. The reason this isn't an optimal play though is that it is better the spend your money to cover more numbers (doubling your chances to win the whole thing) than buy insurance to win a slightly larger piece of just part of the pot in the case that your number hits. When you play the lottery, you can choose your own numbers. Or you can ask the computer to pick some random numbers for you. However, the machines are smart enough to pick different numbers for each ticket if you ask for more than one. So if I bought 3 tickets for a 3-number lottery, I would get one ticket for 1, one ticket for 2, and one ticket for 3.

If I was getting a random number every time, you are correct that the chances would be the same. But then there is no point in buying more than one ticket with the same number… of course it really depends on how the payout is structured. Is it the same amount no matter how many tickets win (like a daily lottery with 4 digits) or is it one payout that gets split (like the Big 5)? I was just trying to prove the point that your chances are better (although slightly in real life cases) if you buy all your tickets on one day rather than over a period of time. So I avoided these issues.

All of these are really good questions though, and they bring more to mind. Like:

- So obviously you’ll do better in the 3-number lottery if you buy more than 70% of the numbers. What would happen if you bought 2 tickets per day in a 5-number lottery instead of 1 ticket per day? Is that a better strategy? I don’t have time for the math now, but I would guess yes.

- Even in the Big-5 style lotteries, you could buy more than one of the same number. Though it’s not optimal, if you were worried that there would be a split pot, you would get a larger piece of the pie if you had more than one ticket with the winning number. The reason this isn’t an optimal play though is that it is better the spend your money to cover more numbers (doubling your chances to win the whole thing) than buy insurance to win a slightly larger piece of just part of the pot in the case that your number hits.

]]> by: Chris http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-581 Wed, 17 May 2006 04:33:57 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-581 Do you pick 1, 2 or 3? Or does the computer spit out a number for you like in Big 5 or whatever? Do you pick 1, 2 or 3? Or does the computer spit out a number for you like in Big 5 or whatever?

]]> by: Jason http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-576 Wed, 17 May 2006 00:22:03 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-576 I don't get your objection. I assume we're talking about my hypothetical 3-number lottedy. If there were only 3 numbers, I could buy all possible outcomes for $3. In that situation, I can't possibly lose. I don’t get your objection. I assume we’re talking about my hypothetical 3-number lottedy. If there were only 3 numbers, I could buy all possible outcomes for $3. In that situation, I can’t possibly lose.

]]> by: Chris http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-516 Sun, 14 May 2006 17:22:10 +0000 http://www.investorgeeks.com/articles/2006/05/04/optimal-strategy-for-state-lotteries/#comment-516 Placing $3 on the PA state lottery doesn't give you odds of 100% because the first two wagers don't affect the outcome of the randomly selected number. It's actually 70% just like spreading $1 over 3 days. Placing $3 on the PA state lottery doesn’t give you odds of 100% because the first two wagers don’t affect the outcome of the randomly selected number.

It’s actually 70% just like spreading $1 over 3 days.

]]>