Powerball

From a pyschological perspective, it might make sense for most people to take the annuity. An insane number of winners blow all of the money, so the annuity allows the typical person to take the usual bad financial advice, indulge all the long lost relatives that come out of the wood work, and go crazy buying stuff. ... and still insure that there are still 29 years worth of payments coming before they lose everything.

But from a financial perspective, even with the fact that interest rates are finally positive (but still negative in real terms) at the moment, the 4 or 4.5 percent you are earning on that annuity is probably not going to be a very good deal over the next 30 years. Let's say inflation keeps raging or we go into a long late 1970s / 1980s period in which interest rates skyrocket, you'll have ended up better off taking it as a lump sum and rolling over fairly short-duration bonds. Even with where we are right now, just buying 2 year notes with the lump sum if you took it, you will be outearning their annuity (but you will owe more in taxes on the income you earn).

 

You will need to give me a specific example for me to explain to you why you aren't having the same conversation I am. I'll try using a made up scenario, and hopefully I make sense.

Let's say you are a sports bettor, and you take an extreme underdog on a +10000 moneyline bet. So you are betting $100 to win $10000. You're thinking that is the same thing. ... but it's not.

In sports betting, the odds are designed to make up for the probability of a much better team winning. If it is an efficient line, those odds are compensating (with a $100 bet paying $10000) people for taking the team that has a much lower probability of winning, to persumably make the expected value on that $100 close to $100.

So it's not the same thing. The reason that most people lose over time from betting on sports is that the bookie charges you for taking the bet -- let's say a 10 percent vig (it varies). So even though the odds conceptually equalize both sides of the bet, you end up betting $100 to win $90 over and over again after they take the vig.

That said, that expected value on that $100 bet is still a much better proposition than that powerball game is.

 

We have a winner. One ticket in California, where $2.04 billion doesn't go as far as other places.

https://www.washingtonpost.com/nation/2022/11/08/powerball-record-winning-ticket/