Why huge Mega Millions jackpots are more common now : NPR
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If you like daydreaming about what you would do with a day’s worth of billions of dollars, Powerball and Mega Millions The lottery is giving you more opportunities than ever: for some reason, the eye-catching jackpot is now more likely to happen than it has been in recent years.
But that doesn’t mean you’re more likely to win a big lottery prize than you were 10 years ago. In fact, it’s less likely to happen – but that’s not likely to stop anyone from buying a ticket.
“It’s fundamentally difficult for humans to understand risk when we have very, very rare things,” said economics professor Victor Matheson of Holy Cross University.
Many Americans are now thinking about what could happen if a sudden riches hit, as Friday night’s Mega Millions jackpot is predicted to be 1.35 billion USD. If a winner appeared, it would be the second-largest jackpot in Mega Millions history. Friday the 13th drawing is set for 11 p.m. ET.
Here are five things to know about how the lottery works and why organizers are touting ever bigger jackpots:
First, about the days of paying billions of dollars
Huge Jackpot That Makes Eye-catching Headlines – $2.04 Billion! $1,337 billion! — but while the term “jackpot” may refer to a pile of cash waiting for the lucky winner, the reality is different.
“It’s not accurate at all,” says Matheson, to think of someone getting all of that money all of a sudden. “And it’s crazy that we all believe the frame that the US lottery has imposed on us – including me, the economist, who should have known better.”
When people win the lottery, they can choose between receiving the payment in cash or having the organizers invest the money in an annual sum that will pay them once now and again in the near future. next 29 years. On the day of the draw, the actual amount staked can be huge — but it is much smaller than the jackpot.
“What they call the ‘advertised jackpot’ is the sum of these 30 payments. And that’s crazy,” Matheson said, adding that lottery winners mostly choose the sum. Payment in cash. But that doesn’t stop the lottery — and yes, the media — from hyping up bigger, more interesting numbers.
Rising interest rates are making the jackpot bigger
The lottery’s advertised jackpots are based on annuities, which in turn are based on interest. And like interest rates rise sharply In the past year, they have received total jackpots for the trip.
“To have the advertised $1 billion jackpot today, you need about $500 million in that jackpot pool,” says Matheson. “But two years ago, during a deep recession due to COVID, you would need more than $700 million in that pool to actually generate a $1 billion annualized.”
The spike in interest helps explain why two of the biggest lottery jackpots ever coming in 2022. But other factors are also at work.
Lottery changed their rules
Over the last 10 or so years, the lottery has seen three major changes that have made big jackpots less rare.
The first major change came when two large multinational lottery companies, Mega Millions and Powerball, came up with an old agreement that restricted each of these companies from dividing regions of the country.
“They basically signed a truce,” Matheson said. And with all but five US states currently operates a lottery, he added, “which means you have 300 million potential buyers, all of whom contribute to that pool.”
The second change is simple: the price has doubled. After Powerball increased ticket from $1 to $2 in 2012Mega Millions follows in 2017for money to accumulate much faster than before.
The third change, Matheson said, is that both lotteries have changed their odds, as they now give players a chance of winning around 1 in 300 million.
“The fact that they make it harder to win means that the jackpot is more likely to flip” and even bigger, he said.
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People are not good at calculating odds
Lottery hits people’s desire to dream big. But while good people develop intuitions about the extent of risk and possible reward in their own experience, those skills don’t translate well to the vast scope of the lottery.
People’s fundamental misunderstanding of how rare winning the jackpot is in favor of the lottery, Matheson said.
“If people were really, really good at math, nobody should buy lottery tickets,” he said.
For example, he points to that change in the way the two major lotteries work. On an intuitive level, it makes no difference when the lottery moves from a 1 in 175 million chance of winning to a 1 in 300 million chance.
“We don’t understand that distinction, though mathematically it basically means that these multi-billion dollar jackpots are twice as common,” Matheson said.
Big jackpots change lottery demographics
“One of the main criticisms of lotteries in general is that they prey on the poor by selling them hope,” says Matheson. “And for things like scratch-off tickets, we know they’re mostly bought by people with lower incomes.”
Huge jackpots shift demographics, attracting ticket buyers from a variety of income levels. The result, Matheson said, is a lottery with a large jackpot that can be seen as “a more progressive selection of lottery tickets than most of the things we’re used to seeing sold by lotteries.”
For an indication of how it works, consider this: When you walk into a store to buy a lottery ticket with big payouts, you’re ignoring other games that offer opportunities. victory — but that also lacks tantalizing life prospects. – exchange of wealth.
Matheson summed it up: “The real excitement isn’t there, and the dream of what you’re going to do [if you won] no scratch-off tickets like Mega Millions tickets with huge jackpots.”
Sure, if you hit big, you might have to split the prize with other winners. And the actual cash payout will be much smaller than the jackpot — even before the IRS takes its share. But for most of us, that’s not a problem.
“It really is a purely entertainment product,” Matheson said of the lottery. “As soon as people started thinking about it as an investment product, that was a problem because it was an investment with a huge negative average return.”