Are $1 billion jackpots going to become routine?

The $1.4 billion payout from the Powerball drawing on Wednesday is eye-popping. But is this an outlier or just the start of a new trend?

Matt Bailey, associate professor at the Bucknell University School of Management, says there is reason to believe it won’t be long until we see the next payout north of 10 figures.

“The Powerball recently changed and this huge jackpot was manufactured by making it less likely to win. Under the new odds, you are roughly 1.7 times less likely to win than under the old system. This was manufactured to create large jackpots and more ticket sales even though this is actually worse for the players,” Bailey said. “Given that this huge payout happened within three months of the rule change is telling. If the excitement over it dies down and half a billion jackpots are commonplace, less people will buy tickets decreasing the odds that someone will win the jackpot and allowing it to continue growing.”

“The value of winning $301 million is no different than winning $300 million for most people. However, winning $1 million is much different than winning $0 even though the difference between the two is the same $1 million. It’s obvious, but I would argue the life impact of a $300 million jackpot versus a $1.4 billion jackpot is pretty small. So people that say, ‘I don’t play the Powerball unless the Jackpot is above $300 million’ are inherently irrational. If you don’t play at $300 million, you shouldn’t play now. The craze we’re seeing is a quirk of our flawed psychology of decision-making. The lottery’s recent change in the odds was done to exploit this. It’s very clever.”

“I don’t plan on buying a ticket but I don’t see buying a ticket as a ‘bad’ decision. Financially it clearly is, but if it is for fun and allows you to dream about buying a yacht, then by all means, buy a ticket. As with any gamble or entertainment spending, just don’t spend more than you can afford.”

Source Contact Information

Institution:
Bucknell University
Title:
Associate Professor, School of Management
Email:
matt.bailey@bucknell.edu
Phone:
570-768-9018