SEA at ASU Student Economics Association

Powerball Economics Student Economics Association

The Role of Government 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 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 Economics Student Economics Association Pick three numbers: & choose heads or tails : (Kennedy is heads) +

Payoffs 1. To win anything, you call the coin flip correctly. 2. Then: 0 correct numbers 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 Correct Numbers Frequency (20 possibilities) Three “Red”: 1/20Three “White”: 1/20

Expected Value:  x i p i Add up payoffs (x) weighted by probabilities (p) Correct Numbers Frequency (20 possibilities) EV = ½ ( )/20 =.80 = (0) (1) (2) (5)

PB x 1/42 White Balls (1 – 55) Power Ball (1 - 42) Probabilities x = ≈ 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 Value of a Lottery Ticket The expected value of a Powerball ticket is in the neighborhood of… 22 ¢ – before taxes! Remember each ticket costs you one dollar

Economic 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 Cost Per Pathological Per Adult Gambler Capita Crime Lost Productivity Bankruptcy Suicide Illness Social Services Regulatory Agencies 62 1 Family Disruption TOTALS $10,330 $219 Some Specific Gambling Costs

WE can’t win if YOU don’t play !!!