Why I Buy Lottery Tickets and a Conversation with a Hair Stylist

by JT McGee

Why I buy lottery tickets as a personal finance nerd.I write about anything related to money on this blog. I also confess to being a utilitarian when it comes to my money. I must now confess that I spend way too much money getting my hair cut, and I also occasionally buy lottery tickets.

If I am to be judged by the countless others who write about finances, then I am a financial moron. I’ll wear this as a badge of honor.

Conversation on the Power of Luck

The woman who trims my hair tells great stories, which is why I’ll always go to her–even if I could get my hair cut cheaper elsewhere.

Recently, we were talking in general about the power of luck. She said to me that she couldn’t believe the people who were part of her high school graduating class and their success in running their own small businesses. By her observation, they were perhaps the dumbest people she had ever known.

How could they find so much success? I suggested that maybe it was luck.

What I mean by that is each successful business in operation today likely had some seemingly random event turn in their favor. Believe it or not, the successful shipping company Fedex was once on the path to bankruptcy. A lucky game of blackjack enabled the founder to secure enough capital to make payroll, later turning it into a company worth $25 billion at current Wall Street valuations. (Fedex trades under the ticker symbol FDX.)

I said to her that those who have success are those who properly manage their luck. They have cast out enough nets, but not too many, that the luck shines through enough to create a crazy amount of success. Those who aren’t successful either cast too many nets, effectively diluting their luck, or too few that they miss out on the luck as it happens.

She pondered the thought, agreed, and that was that.

Linking to finance

There’s something very important about the power of luck in our finances. When people talk about diversification in their investment portfolio, they’re really just using a big word to describe what is essentially luck.

In spreading out your investment dollars to the 500 securities in the S&P500 index, you’re spreading your money, and your luck. You’ll never do insanely well with the S&P 500; you won’t even match the return of the index due to annual fees, but you’ll do pretty darn well, and with reasonable consistency.

There will be a few S&P500 components that go broke. There will be a few that triple in price. Diversification wipes out bad luck, but also subdues, to some extent, the power of good luck.

Exactly why I buy lottery tickets

This conversation exemplifies my rationale behind the purchase of lottery tickets. While I am very much aware that I could save this $20 per year and turn it into $1,000—or whatever the hell amount is supposedly so large to be convincing—I also realize that $1,000 is nothing more than a drop in the bucket.

$1,000 isn’t going to change my world. Unbeknownst to most people, the Beatles actually wrote a song about the lottery ticket argument—“Nothing’s Gonna Change My World.” So ahead of the curve, those Beatles.

$100 million would change my world. Therefore, I conclude that despite all the mathematical evidence, the off chance that I win $100 million is worth far more to me than $1,000 in the future because $1,000 isn’t enough to change my life. $100 million is enough to change my life.

So I buy lottery tickets like a champ. These three things make the expense especially worth the cost:

  1. The feeling of a 1/100 million chance that I’ll be a multi-millionaire.
  2. The understanding that each dollar lost is one dollar dedicated to education, which may hopefully turn around the horror that is public schooling.
  3. The five minutes of fun that I have thinking about what I could do with $100 million. In particular, the fun of trying to turn it into enough to appear on the Forbes 400 list. These thoughts helped inspire ideas in my post titled “If I had a million dollars.”

I’ll keep buying lottery tickets because I simply don’t have enough exposure to pure and simple luck in my portfolio.

Are you long on luck?

Photo by: Spakattacks

{ 21 comments… read them below or add one }

cashflowmantra August 15, 2011 at 08:43

I like your rationale. Your lottery spending is no different than me paying to see the “Rise of the Planet of the Apes” today. It is for my entertainment. At least you have the opportunity to win millions.

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JT McGee August 15, 2011 at 12:47

“At least you have the opportunity to win millions.” Exactly.

I don’t really like movies, anyway. 😉

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krantcents August 15, 2011 at 11:33

I think you are the first person that rationalizes buying a lottery ticket because you don’t have enough exposure to luck. I have purchased a total of $12 worth of lottery tickets in 25 years purely to have a chance to win! I was only willing to waste that small amount on such bad odds.

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JT McGee August 15, 2011 at 12:45

I really do think that luck is a pretty awesome asset class. Personal finance people should eat it up. There’s so much talk about the guaranteed returns of paying down debt, investing in the financial markets, and what have you, that maybe most people just need a $1 investment in luck to add a little possibility for insane returns.

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Flexo August 15, 2011 at 12:44

$20 a year on lottery tickets is no big deal at all… It’s a small price to pay for a feeling of “maybe it will change my life…” even if the odds are ridiculous. If you were spending $20 a day on lottery tickets and other aspects of your life were suffering because of it… then, maybe there would be an issue.

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JT McGee August 15, 2011 at 12:46

Absolutely agree.

As far as I see it, I won’t throw down $2 for 2 tickets to a single lottery drawing, but I’ll throw $1 into 2 different ones. You have to spread your dollars around to get some kind of exposure to luck, because it really does matter.

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Ashley @ Money Talks August 15, 2011 at 14:59

I can’t believe you buy lottery tickets. 🙂 I’d rather “win” my $ by keeping it in my pocket.

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JT August 16, 2011 at 11:26

But they’re a non-correlated asset class!

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retirebyforty August 15, 2011 at 15:13

I buy a ticket when the jackpot is huge and I remember to buy. Usually I forget to buy and it’s no big deal. Good rational though. It’s fun to dream about what you can do with the jackpot!

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JT August 16, 2011 at 11:26

Very fun to dream. I’d say it’s worth a whole $1. 😉

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Jonathan August 15, 2011 at 15:19

I’ve never heard lotto tickets rationalized like this, but I get it. It’s not a huge expense, it’s kinda fun, and so you’re paying for entertainment with a ridiculously small chance of striking it rich. I enjoy very moderate amounts of gambling in Vegas – I’ll play with $20 or $40 at a time. If it disappears quickly, I quickly lose my appetite for gambling on that trip; if it lasts a long time, I feel like I’ve gotten my money’s worth and will typically spend up to $100. I’ve probably just about broken even when you add up all I’ve spent over the years (which totals maybe $300) and all I’ve won.

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JT August 16, 2011 at 11:29

Yeah you can play for a really long time without a lot of drawdown on a lot of high-frequency payout games like roulette/blackjack. I’m the same way with the horse races. I’ve probably gambled a few thousand dollars over the course of thousands of races, but the time spent/cost has to be one of the best in terms of an inexpensive way to have fun.

Although, horse racing might not be a good example because it definitely doesn’t offer million dollar payoffs. Err, I don’t place the bets that would provide for million dollar payoffs.

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Doctor Stock August 15, 2011 at 16:47

First time visit… and an interesting post. I found myself laughing, especially as I read people’s comments. It seems like you maybe struck a nerve, for good and bad? HAHA.

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Evan August 16, 2011 at 20:06

Going back to the hair stylist’s comment, “By her observation, they were perhaps the dumbest people she had ever known.” A lot of people take that attitude but what could she possibly know about their intelligence when she knew them until the age 18?

Not trying to attack her, just the general attitude that all of people express that just because someone is successful they were automatically lucky.

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JT August 16, 2011 at 20:19

It’s a different kind of intelligence, I think. You can be dumber than a box of rocks, but if you’re smart about how you allocate resources you’ll be a successful person.

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Financial Samurai August 16, 2011 at 20:18

Good points JT. I might have to start joining you on them lottery ticket purchases!

$1,000 is not much in the long scheme of things.

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JT McGee August 18, 2011 at 19:28

Not at all, but $200 million is!

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Invest It Wisely August 17, 2011 at 19:12

Hey JT,

I think your last points were a little off mathematically but hey, if the feeling of a long shot is worth it then why not. I don’t begrudge anyone who buys a few tickets here and there for a shot at the dream, no matter how remote it seems. Just imagine if your number was called…

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JT McGee August 18, 2011 at 19:28

I imagine every time I play the lottery! I haven’t won anything significant yet, but as far as I’m concerned the math doesn’t matter when the upper boundary is almost too high to be quantified.

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Geoff August 18, 2011 at 19:58

I like gambling in small doses (and occasionally large doses) for the same reason. I realize it’s not a good investment, but if it doesn’t impact my financials in the long run and gives me that “5 minute feeling” once in a while, why not?

That’s one of the things that drags me back to Vegas once a year…..

Now if only I could find a good hair stylist that didn’t butcher me or annoy the crap out of me I’d be gold!

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Nobody April 1, 2012 at 21:35

Regarding item 2, what you should understand that for each dollar spent on lottery tickets, it’s more like 25 cents being dedicated to public education (or whatever other use your state may make of it). About 60 cents is distributed among lottery winners and about 15 cents is used to run the lottery. See http://www.cbsnews.com/8301-18563_162-57407364/where-does-mega-millions-money-go-after-the-jackpot/
Depending on how you want to look at it, you could say that the only money lost in the lottery is the 40 cents that doesn’t pay the lottery winners. Of those 40 cents, 25 go to education in your state, so approx 62.5% of the money ‘lost’ to the lottery goes to education. Either way, it’s there’s no way for all the money you lose to magically go to education.

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