Question

In: Finance

Discuss how you can determine which is a better financial deal. Also, what are the non-financial...

Discuss how you can determine which is a better financial deal. Also, what are the non-financial aspects to winning the lottery and how do they influence which option to take?

Solutions

Expert Solution

A better financial deal in this context is one where the expected value of winnings is greater than the amount that you have to pay to play.

For example, say in an experiment where you have to pay a certain amount X to roll a die and you win the amount that the die shows, the expected value of your winnings is 3.5 (Average of 1 to 6). So you should play this game if X is lesser than 3.5 i.e. if the amount you have to pay to roll the die once is less than 3.5, you should play thus game.

The non-financial aspects to winning the lottery have to do with the psychology of a person. Say for example, in the powerball, if most of the past winners had bought their ticket from say, Ohio, you'd be inclined to buying tickets in Ohio. This is one of the types of ways which can influence ones perspective about winning a lottery. Though I must add, lotteries are supposed to be random and correlation does not imply causation so one must not emphasize on the non-probabilistic aspects of lotteries.


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