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SEA at ASU

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  1. SEAatASU Student Economics Association Student Economics Association

  2. Powerball Economics Student Economics Association

  3. ACTIVE ECONOMICS The Role of Government Economics and the Environment Outsourcing

  4. Economics is a social science concerned with the logic of scarcity, cost, value, and choice What is Economics?

  5. Economics: Money, Numbers, Choices, and Consequences Money – LOTS of it Numbers – not the powerballs themselves, but the mathematical odds behind the numbers Choices – Are lottery tickets good investments? Logic – Who is going to play this game ? Who is going to win (long run) ? Consequences – personal and societal

  6. Let’s Play our Lotto Game… “You’ve been gambling again !”

  7. 1 2 3 4 5 6 Pick three numbers: & choose heads or tails: (Kennedy is heads) + Student Economics Association Powerball Economics

  8. Payoffs 1. To win anything, you call the coin flip correctly. 2. Then: 0 correct numbers -- 0 1 correct number -- $1 (1 candy bar) 2 correct numbers -- $2 (2 candy bars) 3 correct numbers -- $5 (5 candy bars) Think about it: How much would you pay to play (a) once, (b) every week (c) many times every week ?

  9. Relative Frequencies Frequency (20 possibilities) 9 9 1 1 0 1 2 3 Correct Numbers Three “White”: 1/20 Three “Red”: 1/20

  10. Expected Value: xi pi Add up payoffs (x) weighted by probabilities (p) Frequency (20 possibilities) 9 9 (0) (1) (2) (5) 1 1 0 1 2 3 Correct Numbers EV = ½ (0 + 9 + 18 + 5)/20 = .80 =

  11. Probabilities x 1/42 0 1 2 3 4 5 PB White Balls (1 – 55) Power Ball (1 - 42) 5 4 3 2 1 1 x = ≈ 1/3.5 million ! 55 54 53 52 51 If you bought 12 powerball tickets every week, you would have a 50% chance of winning a jackpot once in 134,000 years…

  12. Expected Valueof a Lottery Ticket The expected value of a Powerball ticket is in the neighborhood of… 22 ¢ – before taxes! Remember each ticket costs you one dollar

  13. Economic Questions and Issues 1. Is Powerball a “bad” investment? 2. Is it irrational to play powerball? 3. Who plays powerball? 4. What is the state’s objective? 5. As a matter of policy, is it a good idea to use lottery gambling as a major revenue source? 6. Are there “hidden” costs?

  14. Let’s think about this… • Government sells Powerball tickets ($1 each) • Ordinary citizens buy tickets • Most Citizens receive nothing from govt. directly in terms of monetary gain • Money used in government programs (state parks, schools, etc.) This sounds like it could be a…

  15. a TAX!!!

  16. Regressive tax: tax rate (%) gets higher as income gets lower – the poor pay relatively more Progressive tax: tax rate (%) gets higher as income gets higher (e.g., US personal income tax) – the rich pay relatively more So what kind of tax could be?

  17. Some Hidden Costs • Over Ten Million Problem Gamblers in US Arizona prints “Play Responsibly” on its tickets; Colorado contributed 300K to Gambling addiction studies • The National Council On Problem Gambling has hotlines to help those who become addicted.

  18. Some Specific Gambling Costs Cost Per Pathological Per Adult Gambler Capita Crime 3591 75 Lost Productivity 2358 58 Bankruptcy 251 6 Suicide Illness 773 20 Social Services 425 16 Regulatory Agencies 62 1 Family Disruption 2880 60 TOTALS $10,330 $219 Researched by Prof. Earl L. Grinols, Baylor University, Nov 2004 http://www.texaspolicy.com/pdf/2005-03-vlt-grinols-summary-11-04.pdf

  19. WE can’t win if YOU don’t play !!!