SEA at ASUStudent Economics AssociationStudent Economics Association

Powerball EconomicsPowerball EconomicsStudent Economics AssociationStudent Economics Association                                                                      

                                                                     

The Role of The Role of GovernmentGovernment

Economics and the Environment

ACTIVE ECONOMICS

Outsourcing

What is Economics?Economics is a social science

concerned with the logic of scarcity, cost, value, and

choice

Economics:Economics:Money, Numbers, Choices, and ConsequencesMoney, Numbers, Choices, and Consequences

Money – LOTS of it

Numbers – not the powerballs themselves, but the mathematical odds behind the numbers

Choices – Are lottery tickets good investments?

Logic – Who is going to play this game ? Who is going to win (long run) ?

Consequences – personal and societal

“You’ve been gambling again !”

Let’s Play our Lotto Game…

Powerball EconomicsPowerball EconomicsStudent Economics AssociationStudent Economics Association

11

44 55 66

3322

Pick three numbers: & choose heads or tails: (Kennedy is heads)

+

PayoffsPayoffs

1. To win anything, you call the coin flip correctly.

2. Then: 0 correct numbers -- 0

1 correct number -- $1 (1 candy bar)

2 correct numbers -- $2 (2 candy

bars)

3 correct numbers -- $5 (5 candy bars)

Think about it: How much would you pay to play (a) once, (b) every week (c) many times every week ?

Relative Frequencies Relative Frequencies

0 1 2 3 Correct Numbers

Frequency (20 possibilities)

1 1

9 9

Three “Red”: 1/20Three “White”: 1/20

Expected Value:Expected Value: x xii p pii Add up payoffs (x) weighted by probabilities (p)

0 1 2 3 Correct Numbers

Frequency (20 possibilities)

1 1

9 9

EV = ½ (0 + 9 + 18 + 5)/20 = .80 =

(0) (1) (2) (5)

0 1 2 3 4 5 PB

x 1/42

White Balls (1 – 55) Power Ball (1 - 42)

Probabilities

x = 5 4 3 2 1 1 55 54 53 52 51

≈ 1/3.5 million !

If you bought 12 powerball tickets every week, you would have a 50% chance of winning a jackpot once in 134,000 years…

Expected Valueof a Lottery Ticket

The expected value of

a Powerball ticket is in

the neighborhood of…

22 22 ¢¢

– before taxes!

Remember each ticket

costs you one dollar

Economic Questions and IssuesEconomic Questions and Issues

1. Is Powerball a “bad” investment?

2. Is it irrational to play powerball?

3. Who plays powerball?

4. What is the state’s objective?

5. As a matter of policy, is it a good idea to use lottery gambling as a major revenue source?

6. Are there “hidden” costs?

Let’s think about this…

• Government sells Powerball tickets ($1 each)

• Ordinary citizens buy tickets

• Most Citizens receive nothing from govt. directly in terms of monetary gain

• Money used in government programs (state parks, schools, etc.)

This sounds like it could be a…

a TAX!!!

Regressive tax: tax rate (%)

gets higher as income gets lower –

the poor pay relatively more

So what kind of tax could be?

Progressive tax: tax rate (%) gets

higher as income gets higher (e.g., US

personal income tax) –

the rich pay relatively more

• Over Ten Million Problem Gamblers in US

Arizona prints “Play Responsibly” on its tickets; Colorado contributed 300K to Gambling addiction studies

The National Council On The National Council On

Problem Gambling has Problem Gambling has

hotlines to help those hotlines to help those

who become addicted.who become addicted.

Some Hidden Costs

Researched by Prof. Earl L. Grinols, Baylor University, Nov 2004

http://www.texaspolicy.com/pdf/2005-03-vlt-grinols-summary-11-04.pdf

Cost Per Pathological Per Adult Gambler Capita

Crime 3591 75 Lost Productivity 2358 58 Bankruptcy 251 6 Suicide Illness 773 20 Social Services 425 16 Regulatory Agencies 62 1 Family Disruption 2880 60

TOTALS $10,330 $219

Some Specific Gambling Costs

WEWE can’t win if can’t win if YOUYOU don’t play !!! don’t play !!!