ROCKY HILL, Conn. – Three asset managers from Connecticut’s affluent New York suburbs claimed a $254 million Powerball jackpot on Monday off a $1 ticket.
Lottery tickets are generally a terrible deal in terms of expected value – the lottery pays out far less in winnings than it receives in ticket sales. It has to pay expenses and show a profit. Then the winner has to pay a big income tax bill.
But occasionally, after no one wins the big prize several drawings in a row, the jackpot gets so big that the expected value is positive.
You might think that’s a good time to buy a ticket. Actually, it turns out that’s still a losing strategy. Why? Because unless you’re a millionaire, the correct amount to bet is very small. And if you’re not a millionaire, a single ticket is an overbet. You almost always go broke before you hit the jackpot. Paradoxically, even though each individual bet has positive expected value, your expected long-run profit if you bet every week is less than zero.
What’s the right amount to bet on a risky, but profitable proposition?
Never doubt that a small group of thoughtful, committed citizens can change the world; indeed it’s the only thing that ever has. – Margaret Mead
Given a choice between order and chaos, I will generally choose order.
Larry Summers: Daniel Ellsberg drew out the lesson regarding the Vietnam War…Policymakers acted without illusion. At every juncture they made the minimum commitments necessary to avoid imminent disaster — offering optimistic rhetoric but never taking steps that even they believed offered the prospect of decisive victory. They were tragically caught in a kind of no man’s land — unable to reverse a course to which they had committed so much but also unable to generate the political will to take forward steps that gave any realistic prospect of success.
In college, I spent a summer working in the chemistry lab. One of the first things you learn in chemistry is, if you put a match in a flask containing some gas, one of three things will happen. It might put the match out, and nothing will happen. It might keep burning, and set up some kind of cycle, like a convection current, or the rotation of a steam engine. Or it might explode.
The Euro is at an unstable equilibrium point – a flask primed to explode, more like World War I than Vietnam. If anyone or anything nudges it, the ball will starts rolling, it’s going to keep going until it finds a stable equilibrium who knows where. And if leaders don’t shore it up, the markets will give it a nudge, possibly sooner rather than later.
It is a slow day in a small Irish town. The rain is misting and the streets are deserted.
Times are tough, everybody is in debt, and having a hard time making ends meet, let alone climbing out of debt.
On this particular day a rich German drives into the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives him the keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
The pig farmer takes the €100 note and heads off to pay his bill at the feed co-op.
The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub.
The publican slips the money to the local prostitute drinking at the bar, who has fallen on hard times and had to offer her services on credit.
The hooker rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor puts the €100 note back on the counter.
At that moment the traveller comes down the stairs, states that the rooms are not satisfactory, picks up the €100 note, pockets the money, and leaves town.
No one produced anything. No one earned anything. However, the whole town is now out of debt and looking forward to a brighter future.
And that, gentle reader, is how a successful bailout works.
A good analogy – Of hurricanes and economic equilibrium.
Suppose that an atmospheric theorist developed the Efficient Atmospheres Hypothesis (EAH), that said that the atmosphere always tends toward equilibrium. Any time pressure differences arise, they create winds carrying air and energy from the higher pressure zone toward the lower pressure zone. That flow of air lowers the pressure in the former, raises it in the latter, and eventually brings those two pressures into balance. Hence, the pressure everywhere (at the same altitude) should be identical, or almost identical.
True enough at a micro level, but why do hurricanes happen? “A hurricane could never come into existence, because the atmosphere is efficient and in equilibrium, and the forces of physics act to keep it there.” What about my house that was blown down by a hurricane last week? “See, I was right, the atmosphere worked to restore equilibrium just as I said.”
The hurricane must have been caused by ill-conceived external influence, like sunspots, cosmic rays or Fannie Mae…or the theory is still incomplete.