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Risk 101 and my new $500 Million Fortune- Goodbye Work! March 29, 2012

Posted by Chris Mark in Risk & Risk Management.
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I have written a number of posts on risk and probability in the past.  You can read them here.  As I was on the phone with a good friend last night talking about buying our Mega Millions lottery tickets for the very first time, I was struck by how amusing the whole situation was. My wife and I were talking with our friends about a strategy to buy lottery tickets.   I was talking about buying lottery tickets for the very first time!  First, they don’t sell MegaMillions in Utah, and I have never played the lottery.  Why? I recognize that the chances of winning are infinitesimally small. (~1 in 176 million)  So what changed last night?

The MegaMillions lottery approached $500 million for the jackpot!  Can you believe it?  I am going to be $500 million richer in the next few days!  I just feel it.  I have the winning numbers! Odds be damned! Goodbye GlobalRiskInfo.com and hello life of luxury on my new super yacht Risky Business! (I even have it picked out and named)So the interesting part about the lottery is that your chances of winning the MegaMillions is the same for any jackpot.  As stated by gaming mathematician and actuary Michael Shackelford: “your chances of winning the jackpot with Mega Millions will always be the same. It doesn’t matter what numbers you pick or the jackpot size.” The reason this particular example is amusing is it highlights the idea of probability ignorance and focusing on impact or utility of an act. With a large enough impact (in this case benefit), people ignore the low probability.  Don’t believe me?  Consider how many people (including me…and likely some readers 😉 cannot be bothered to play the lottery when the jackpot is a paltry $10 million or $100 million or even $300 million even though the chances of winning are the same regardless of the jackpot.  For must of us even $1 million would improve our lifestyles quite a bit.  Once the jackpot approaches $500 million though….now I am, and many more are, willing to part with $1 for a ticket.

So, I am writing this as one of my last posts as I am confident that I will win the $500 million.  I know, I know, the odds are against me but I just have a feeling that it is going to be me. We have a super number picking system that I am sure will win the jackpot.  Yes, I know if you are playing you are certain you will win, as well but I just feel it in my bones that I am going to win the $500 million.  I feel bad for you but there is always next time.

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