So, I finally got some time to read some of my favorite blogs (besides the 4 that I check at least a couple of times a week), and got over to Deb and Jay's place. Wouldn't you know it, they pointed me to the Carnival of Personal Finance and I got all sidetracked again.
I got into reading Revisiting the Lottery and found myself agreeing with what was written. I don't think the author went far enough with the calculations though because he didn't account for the difference in prize money if the winner chose the Cash option (as opposed to the annuity - and I have never heard anyone say they would take the annuity if they won). For the cash option, you can figure the prize is cut by about 1/2 to begin with. Then the government gets more than 1/3 of that so winner's take is only about 1/3 of the advertised prize (which is always the annuity value).
So, a $10 million annuity prize is roughly a $5 million cash prize, the government gets $1.65 million of that - so the total take home cash prize is $3.35 million. Then you can get into the calculation of the opportunity cost from there. however, I will admit, that we play the lottery if it gets up to $100 million - but that's assuming that we hear an ad on the radio, because otherwise we would never know what the jackpot is worth.
Just my 2 cents worth.
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