Tonight’s Powerball Jackpot is $1.2 BILLION. I’ve been studying the inner workings of the lottery industry for 5 years. AMA about lottery psychology, the lottery business, odds, and how destructive lotteries can be.

1. If the purpose of Yotta is to use lottery psychology "for good," why have you historically indulged in practices that seem to exploit those mechanics for your own benefit to the detriment of Yotta customers (particularly Crypto Buckets, which pushed users toward uninsured deposits by offering additional tickets over the FDIC-insured deposits) and the Hot Pot promotion (which tanked the APY for every single user but one lucky winner)?

2. Now that you've gotten rid of Crypto Buckets and ended the Hot Pot promotion, how can we trust you to not go back to exploitative schemes the next time they look like a good way to make yourselves a quick buck?

3. Are you ever going to make it easy to track our actual realized APY over time (ideally on a monthly, annual, and all-time basis) so we can see what we're actually earning with Yotta vs. what we could be earning elsewhere? The app only shows the current month to date plus last month's APY, and I literally can't find the info on the website at all.

4. Why should I keep more than a token deposit at Yotta (for 1 ticket/week, same as the regular lottery) when real HYSAs are offering 3%+ APY?

1) Crypto Buckets was a 100% optional product in which we made clear of the added risk vs. FDIC insured accounts. We never indulge in exploitative practices, but we do give our users options for the right offerings that might suit their needs and risk appetites. FDIC insured is one type of investment, Crypto Yield is another type of investment with a different risk profile. I don't believe everyone should have all their funds in FDIC insured accounts. There is 100% a place for higher yielding investment products in a consumer's portfolio. These higher yielding products come with higher risk of course.

As for the Hot Pot promotion, this was intended to be a fun promotion to have a growing rolling jackpot every week, attracting many people for the big jackpot aspect that draws people to PowerBall. This wasn't to our benefit - we paid out more than we did before by running it.

2) These weren't exploitative schemes. The Hot Pot promotion was temporary and when Crypto markets became volatile and the market environment changed materially from when it was launched, we made the decision not to offer it anymore out of an abundance of caution. We will always put our customers first in these decisions.

3) Thanks for the suggestion. We will consider this yes, but have not gotten to it yet.

4) If you are trying to maximize every last penny of your savings and not have any fun or entertainment factor, you can get more yield than Yotta. Yotta is intended to provide great value in the form of yield while also being exciting, fun, and social. You won't get that anywhere else from savings products. And no where else can you get the same upside from a savings account. So yes some people will get less than 3% and some will way more - this is part of the fun and we think this will help motivate people to save instead of play the lottery. Most consumer deposits right now sit in sub 0.10% yielding accounts and no one is motivated to save. We want to change that.

Thanks for answering tough questions.

Thanks. I don't believe in tough questions. Only questions. I'll always answer honestly. Nothing to hide

Thanks. I don't believe in tough questions. Only questions.

Why does my extended family resent my success despite also being successful themselves?

That is a question I can't answer

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Very meta

My money is on this won't get answered.

Just saw this - posted an answer

See https://www.reddit.com/r/IAmA/comments/yk6pdu/comment/iusjt4a/?utm\_source=share&utm\_medium=web2x&context=3 I just saw this comment since I was sorting by "New"

Hey OP. Can we get some answers here?

See https://www.reddit.com/r/IAmA/comments/yk6pdu/comment/iusjt4a/?utm\_source=share&utm\_medium=web2x&context=3 I just saw this comment since I was sorting by "New"

Can you explain why the odds are less than being crushed by a meteorite when someone will likely win soon but we don’t hear about people getting crushed by meteors? Is this a media thing and there’s more meteor deaths than we realize???

So it's kind of a headline thing. It's mainly based on probability of a meteor hitting earth and killing a large number of people in a given year. It never really happens, but probabilistically because it could wipe out a huge number of people, you are more likely to die that way. I haven't audited the data behind this, but that's the idea.

Watch out when you cross the street next time...

Watch out when you cross the street next time...

what are you planning?

This is the meteor coming

There was a fascinating article in the New Yorker recently that described the history of the lottery in different societies being used to prop up wars and overspending governments going back to the Roman era.

I think it mentioned that the money brought in to local governments from the lottery is often earmarked for a specific cause such as education in order to keep it's popularity up, even though it often goes elsewhere or does not cover much of the education spending need. Is there a resource where we can see state-by-state where the lottery money is going to?

(EDIT: Found the article. https://www.newyorker.com/magazine/2022/10/24/what-weve-lost-playing-the-lottery)

Yes every state publishes this. See https://nclottery.com/Content/Docs/PAFR_2021.pdf for an example

If you use the "easy pick" option are you more likely to get a duplicate ticket to someone else using the same method?

No these systems are all well audited and secure. It's truly random.

Is there a way to calculate just how big of an ass I would be if I were to win the $1.2 Billion Jackpot?

Yes. Ask your friends and they will know the answer.

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How do you plan to "crush" lottery ?

We offer a way to win a life changing amount of money via a lottery-like system in a savings account. We want to give people the feeling of the lottery in a healthy way. Hopefully we can become as big as Premium Bonds in the UK which has over $100B in deposits. It's a lofty goal to "crush the lottery" but I really hate the negative impact it has on society.

Where does the money come from for the prizes?

Using your money to make loans to others. It's how traditional banks work but instead of giving everyone a 0.33% APR rate on their savings, they combine it and give away a larger chunk as winnings of a lottery amongst members.

Yeah exactly

Americans spent $105 billion on lottery tickets. That is more than the total spending on music, books, sports teams, movies, and video games, combined! 40% of Americans can’t come up with $400 for an emergency while the average household spends over $640 every year on the lottery,

What percentage of households play at all, and what percentage are putting in huge amounts to offset them? I'd guess the median is far less than the mean here.

Is there data on how the spending breaks down on demographic lines like income and race?

What percentage is being spent on scratchers vs. local drawn games vs. national ones like Powerball and Mega Millions?

About 50% of adults play at least once a year. Median is definitely well below the mean, but not sure what it is. A lot of this data is survey based. Across incomes, on an absolute $ basis, lottery $ spent are similar, so for lower income it's a much higher % of income.

Where does your $640 stat come from? And that's just for the lottery, not all gambling, correct?

Just take total lottery spend in the US and divided by total number of households. You'll get something now north of $640

My dad used to buy a “full year plan”, two plays in each weekly Lotto (this was back in the 80s). He played a combo of birthdays and anniversary dates and was afraid he’d miss a week and he’d find out later his numbers won. Do they still offer that? He’d never check the numbers, just kept his fingers crossed a check would show up. He used to say that when a check would come in it was a crazy rush, anticipating how big it might be. Largest one he ever got was for second lowest payout……never covered his purchase price, but he loved those few times he had an unopened envelope that might be “the big one”.

Never heard of this kind of thing before! Maybe it's not around anymore

How do I win?

Don't play!

Is there any notable difference in winning for those who pick their own numbers vs those who have the machine generate them?

No difference other than you don't want to pick numbers that other people might pick since you want to reduce your chances of splitting the prize.

Do you play the lottery?

I have maybe three times in the past when the jackpot gets really massive, but I don't anymore.

So - how destructive is the lottery compared to other gambling games?

General rule of thumb, the bigger the jackpot the more they can get you in with that number and the worse the expected value for the consumer. All gambling games are different, but the PowerBall and MegaMillions are likely to be the worst when their jackpots haven't ballooned. If the jackpots are massive like tonight, then their EV is much higher.

Another note - lotteries and scratch offs are monopolized by the government. There is no competition, so these games are way way worse than casino games on an expected value basis.

On the flip side, it's easier for people to sit at a blackjack or roulette table all day long and lose more money.

Ehhh...person has to get to the casino to sit at those tables, or have the means (nowadays) to be able to play it virtually with online money.

People in low class areas can always make it to a corner store or gas station to grab a scratcher. And have you ever seen the folks who just camp at a gas station register? Buying a stack, just scratching the barcode and scanning em...not even playing the game itself...I mean there's $20+ cards, too.

Yeah fair enough. Once they're in a casino though, gambling addicts really suffer.

I guess I meant as far as gambling addiction. Sounds like it's less destructive than the casinos or betting on races because people can't play it all day and night?

That's my opinion. But then again, people spend way more on lotteries in aggregate. It's a tough question though.

Would you be willing to lie to me and tell me that one of my three tickets will win?

I have a good feeling about your tickets tonight.

YES! If I win, I’m buying you a car. Like win-win, not like a two-dollar win, unless you like matchbox cars.

I'm going to hold you to this. DM me your numbers!

Why are most winners bankrupt in a couple of years? Or is this a myth? Of 100 winners how many are broke after 5 years?

It's not a myth... it's similar in nature to why people who all of a sudden earn a ton of money go broke (a lot of athletes too). Friends and family come asking you to buy them things, invest in their businesses and it's hard to say no, people spend excessively on crazy stuff... we need better financial education. The annuity option would help people with creating discipline in spending, but almost everyone takes the lump sum.

How heavily taxed are lottery earnings? What kinds of numbers could be taxed on a pool like we have at the moment

If you won the jackpot, you'd be taxed at the top marginal tax bracket, so around 37% federal plus state and local on top of that.

Could you explain a bit more why some people say it’s “better” to play the lottery when the jackpot is higher and more people are playing?

Yeah because a lot of the value from the lotteries come from the biggest prize, when the jackpot is higher, the expected value of your winnings and ticket is higher. It's a better gamble at that point because prizes are bigger. However, if too many people play, you also are more likely to split hat big prize with more people, so it works both ways, but on net, the bigger the jackpot the better the value (assuming the game has the same odds).

Are the lottery tickets vending machines accurate 100% when scanning your tickets for the winning number(s)?

Also, who owns the lottery? And how is the money (profits) distributed among the ownership, where does the annual 100 billion dollars go?

No reason why the scanners shouldn't be 100% accurate. Never seen an issue there. The lottery is run by the state governments around the US. PowerBall and MegaMillions specifically are multi-state lotteries but there are around 7 states that don't offer them.

Lotteries are illegal for private companies to run, so the government "owns" it I suppose.

About half the lottery proceeds go to paying winners. The other half goes to overhead - around 6% go to the stores that sell tickets, 10% go towards general admin and overhead to run the games, and then you've got a big chunk of the remainder of that half that goes to state government revenues to fund government programs.

What are the signs that someone is starting down the hole of lottery addiction?

If they are spending an amount of money on it that they can't afford to be spending.

Is it better to take lump sum or annuity?

Annuity value is healthier for self control and not going broke. However, purely value, the lump sum is likely the better option, assuming you invest it wisely.

I’ve read you’re more likely to win if you choose your own numbers? Is that true?

No, not true!

The states who provide a lottery do they put the revenue from that into a good place, like education?

Yeah they do. That's the good part about it, but there's a lot of inefficiency and cost in the system before we get to the funds that go towards those programs. A lot of waste in between.

You say "You're more likely to be crushed by a meteorite than to win the Powerball." That sounds like hyperbole. There are probably 10 Powerball winners per year. When was the last time anyone was crushed by a meteor?

It's mainly based on probability of a meteor hitting earth and killing a large number of people in a given year. It never really happens, but probabilistically because it could wipe out a huge number of people, you are more likely to die that way. I haven't audited the data behind this, but that's the idea.

Would you recommend a cap on the top prize, (say 750m) and if there are no grand prize winners grow the prize money handed out to second, third, etc.? Would that continue to attract the “only when it’s big” players?

I think the rolling jackpot is a huge draw and the size of that headline figure is the biggest marketing driver they have.

Given the odds of multiple winners, tax implications, and actual pay-outs, at what point does does the jackpot have to be to have a positive expected return?

I did this analysis a while back and came to the conclusion that the answer is never. Ticket sales start to grow exponentially after a certain point and the odds that you’ll have to split the pot several ways start to become very high. I want to say the sweet spot was somewhere in the $500M - $1B range where your expected value approaches even but doesn’t quite get there.

Yeah this is right especially when taking the lump sum value or present valuing the annuity payments, which you should do. Never really get quite to positive EV when factoring in everything (taxes, splitting, etc).

It's a tricky question because with bigger jackpots, the odds of sharing it with multiple people grows because way more people buy tickets. At the current jackpot level, you can make some reasonable assumptions and get to it being close to positive EV at the $1.2B annuity value prize.

Is it wrong to quote the annuity total (payout over 20 years) rather than the actual money that would be paid out (lump sum)? Should marketing be required to give the estimated amount of the prize the lottery has in the moment?

Edit: pointed out the annuity is 30 payments over 29 years.

They do also give the lump sum value I believe... so I don't think it's wrong, but it is definitely a rosier picture.

Wait... 105 billion? Where does that money go to in the US?

Depends on the state, but roughly 50-60% back to the prizes, 6% to retailers.

Every state publishes their lottery financials publicly so you can see this for yourself actually Check out https://nclottery.com/Content/Docs/PAFR_2021.pdf for example. Very interesting to look at these.

What are the numbers for tonight?

1, 2, 3, 4, 5, 6, 7

1, 2, 3, 4, 5, 6, 7? That's the same combination on my luggage!

Are you Dark Helmet?

When I win with these numbers what would you like as your compensation?

50% of the pot!

winners who choose lump sum aren't as crazy as people make them out to be, are they? losing 1/2 your winnings for all of it at once vs the full jackpot that you MIGHT get if the lottery lasts 30 years? (I'm not saying there's a chance of imminent governmental collapse...I'm just saying it's always a possibility)

The lump sum option is mathematically better if you invest it properly, but tougher on self discipline

This may be more stats question but is it true that say that consecutive 1,2,3,4,5,6 vs random 12,1,25,20,31,40 has the same odds? (I'm no math guy)

But I did read that common numbers are the worst as there's a bunch of other people playing the same one.

Also would you happen to know any success stories after people won the lotto? I seen tons of sad stories.

Yeah common numbers are worse but ONLY because more likely that other people use them and you want to reduce your odds of splitting the prize. I have not seen any success stories. I'm sure there are though.

Is it true lotteries were invented to catch time travellers?

No not true

Are the drawings really random or can/do they control when there will be a winner?

They are random. There are very strict security protocols for these drawings.

With all the taxes involved for winners, isn't' the real winner the government? They make income from the sales, and then have vig on the other end.

On a win, how much would a government bring in, between sales, and taxes, versus payout to the big "winner"?

Every state publishes their lottery financials. See this for example: https://nclottery.com/Content/Docs/PAFR_2021.pdf

About 50% - 60% goes to winners.

Who's making money? Is it the state? A independent company? Who profits?

The government funds programs from it.

Can I buy Powerball tickets online in Europe and not get scammed?

My knowledge of the European market is limited unfortunately. In the US, there are now options to buy online in some states. I would imagine Europe has something similar but it would depend on the country. Just do diligence before trusting a random app.

My parents always play the mega millions, or Powerball or whatever it is and always tell me "you got nothing to lose!".

I always get pissed and tell them I will never play the lottery because its negative EV but they just don't care.

Any advice on expressing my view better to have more of an influence on them or is there no changing the stripes of a tiger?

Thanks!

PS - They absolutely don't have a gambling issue or anything but it just annoys me every time they mention it to me and tell me to play since the amount is so high, etc. etc.

Do the math for them. $10 a week is a $520 per year. That's $5k over 10 years, etc etc. You're likely to win like 20% of what you put in, something super low like that. So you lose 80% of that.

Show them that "you have nothing to lose" mathematically over 10-20 years is actually a real meaningful amount of money. And this is money you could be investing at 7-8% in index funds and compounding over time.

Is it hurting you in any way that they play? Let them have fun.

Agreed as long as it's not hurting their lives too

Many people don't buy a lottery ticket until the pool gets large. They say things like, "You can't win if you don't play" and seem to believe that only playing when the pool is large is smart.

Are they right? If so, what is a good counterargument to that behavior? (Appeals to odds and mathematics don't seem to work with this crowd.)

You also can't lose if you don't play! I think the best argument is to show over 10-20 years what playing the lottery would do to the value of your money versus investing it and yielding 7-10% per year in market index funds on average. The numbers add up. At low $ levels no one cares, but when you show how this loses you thousands to tens of thousands of dollars over time, then it starts to sink in.

How does joining a lotto pool effect EV, if at all?

The more people that play, the more the likelihood of sharing the prize, which hurts EV. But the jackpot also gets bigger, which increases EV. The real increase in EV lies in when no one wins the jackpot and the funds carryover to the next game. That's really the only way EV grows.

Is there a rough formula to figure out when the EV dictates playing?

On the surface it seems easy, but with taxes and possibility of splitting the prize, I know it’s more complicated…

There are a lot of calculators online you can find. Just make sure they do indeed factor in the lump sum not the annuity value and also taxes and some assumption around split prizes. The only major unknown is really the split prize odds, but there's good data historically around the odds of that.

What is the expected value of a purchased Powerball ticket when the jackpot is $1.2B, factoring in taxes and the chance of a split jackpot? At what level of jackpot does the mathematical expectation of a single ticket purchase turn positive?

With reasonable assumptions it's likely somewhere around losing 30-40% of your money when factoring in everything. Jackpot needs to be closer to $2B I believe on an annuity basis to be around breakeven. Haven't run these numbers lately, but this should be close.

In Arizona(not sure about other states), we have lottery vending machine.

I wonder if you have stats on how many people have actually won more than 5 digits jackpot?

Feels like i used to win a lil when they didnt have machines 😂

I don't know off-hand, but five digits is pretty rare..

Do lottery winners tend to be people who buy tickets with a certain level of frequency/bought a bunch of tickets for the current drawing?

Sure the more tickets you buy the more likely you are to win, so yeah it's more likely to be a frequent player in that sense, but that player is also more likely to lose a shit ton of money too!

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There's really no way to maximize your "odds of winning" if we're talking about Powerball in particular, other than to play the scratch-off or lottery games that have the best odds.

Sure the more tickets you have the more likely you are to win something, but you're also more likely to lose more. The net effect is if you play a game in which the odds are against you, the more volume you play, the more assured you are of losing due to the law of large numbers.

"Maximizing" your odds of winning the Powerball is basically saying that you went from a 1-in-300 million odds to 1-in-275 million odds.

The number did go up, but not that's going to do you much good.

Yeah there's nothing you can do to create better odds other than play the game when the jackpot is highest which results in a higher expected value for you.

How can you maximise your odds of winning?

That's the wrong way to look at it. Your odds of winning are extremely small, no matter how many tickets you buy or how you buy them.

However, you have zero chance of winning with no ticket. So compared to that, your odds of winning with one ticket are infinitely higher! (And your odds of winning with two or more tickets are similar).

So, if you want to be part of the fun, buy a single ticket. Dream about what you would do with all that money, then don't be surprised when you don't win.

(One exception: if your workplace has a pool, go into that instead. You don't want to be the only schmo in the office who still needs to work if they win.)

Yeah what you really care about is your net profit expectation

If someone wins the lottery, do they have to claim all their winnings on their taxes in the year they won them?

If they take the lump sum, yes

What’s the “winning” strategy?

Either don't play, or play only to an extent you can afford to

If you could change something in the system, what would you do?

One thing I think is obvious is to make the lottery concept legal for private enterprise to run. It sounds weird but it would make the game very close to neutral expected value and people would play it and lose less money.

I would also have governments promote prize linked savings, which is a healthy way to get the feeling of playing the lottery.

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It's mainly based on probability of a meteor hitting earth and killing a large number of people in a given year. It never really happens, but probabilistically because it could wipe out a huge number of people, you are more likely to die that way. I haven't audited the data behind this, but that's the idea.

How can the lottery get away with falsely advertising a $1.2 billion prize when the correct value is $596 million?

It's the annuity value that they would pay out over time. So technically, they are offering $1.2B over 30 years.

Do you know how lotteries around the world differ?

Not as familiar unfortunately

I’ve always been confused as to why these giant virtually impossible payouts exist. Why don’t lotteries reduce the odds in order to distribute more wealth to more individuals into the economy? Surely there’s more benefit to wider distribution of wealth both in terms of spending and taxation. Thus makes zero sense to me. Why not generate 1000 millionaires instead of 1 billionaire that simply hoards the money into partnerships and leeches interest?

The headline jackpot creates a huge marketing opportunity for them. It's what drives everything. The $1.2B headline creates all this buzz. A lot of smaller prizes wouldn't do the same.

Right, I get that, but wouldn’t you as a player be happy to know your odds of winning life-changing amounts of money were 1000x better? Surely that psychology could be nurtured into marketing. I mean I would sure as he’ll be more inclined to play under those conditions than these.

Humans aren't rational remember!

The past 5 winners, did they do auto-pull or pick their own?

I am not sure.... but it doesn't matter!