Search This Blog

Friday, March 30, 2012

The Mega Millions Lottery and Regret Theory

Maybe it's because of my neo-classical economics training, but I'm not like many of my coworkers, who did not have any interest in buying the Mega Millions lottery ticket when the pot was $300 million, all of a sudden couldn't wait to buy their ticket when the pot is $500 million or $640 million or whatever.  Like $300 million (even after taxes) is somehow chump change or as if expected value of the lottery isn't the same or much worse than before!  Rational economic models can't explain this kind of thing very well.  They can't largely because the models are not very realistic.  They assume static preferences and preferences based on a perfect calculation of odds into one's utility function- as if each one of us have set utility function that makes any sense!

But in the 1980s as behavioral economics was really starting to gain ground (just after Kahnman and Tversky published their idea called Prospect Theory)  To many,   expected utility maximization just wasn't sufficient to explain real behavior in decision-making.  One of the outputs from that was regret theory.  The basic tenet of regret theory is that people aren't just robotic maximizers of their own selfish satisfaction, but more-often in many cases they are regret minimizers.

Regret theory can explain this odd lottery behavior we see in many people today.  As the dollar signs skyrocket in unclaimed cash, for a given prices of a ticket the chance of a big regret (of not winning such a historic pot of money) grows significantly, so many people jump into the game to minimize the chances of their regret.

8 comments:

Phantom2planet said...

Creating a follow up post, how lottery effects life and family relations.

Jordanxbei said...

Creating a follow up post, how lottery effects life and family relations.

Anonymous said...

Everуthing is vеry open with a very clear
claгificаtion of the challenges. It was truly infοrmative.
Youг sitе is νery useful. Thank you foг shaгing!


Lοοk at my ωeb blog ... payday loan

oakleyses said...

tiffany and co, christian louboutin shoes, polo ralph lauren outlet, coach purses, nike free, longchamp handbags, coach factory outlet, louis vuitton outlet, tiffany and co, louis vuitton, gucci outlet, kate spade handbags, louis vuitton outlet, true religion jeans, tory burch outlet, kate spade outlet, prada handbags, air max, michael kors outlet, chanel handbags, burberry outlet, ray ban sunglasses, oakley sunglasses, burberry outlet, prada outlet, nike shoes, michael kors outlet, longchamp outlet, louis vuitton handbags, ray ban sunglasses, coach outlet, jordan shoes, michael kors outlet, louboutin outlet, michael kors outlet, polo ralph lauren outlet, air max, michael kors outlet, michael kors outlet, coach outlet store online, louis vuitton outlet stores, oakley sunglasses cheap, oakley sunglasses, true religion jeans, louboutin, longchamp handbags, louboutin

oakleyses said...

hollister, louis vuitton uk, michael kors, sac burberry, true religion outlet, nike tn, vans pas cher, abercrombie and fitch, nike roshe run, nike air max, michael kors, louboutin, oakley pas cher, timberland, nike free pas cher, north face, nike trainers, polo ralph lauren, mulberry, ray ban pas cher, michael kors pas cher, new balance pas cher, ray ban sunglasses, air max, air force, barbour, sac longchamp, sac louis vuitton, vanessa bruno, lululemon, sac guess, sac louis vuitton, air jordan, sac hermes, louis vuitton, true religion outlet, nike free, air max, longchamp, hogan outlet, nike roshe, hollister, ralph lauren, north face, polo lacoste, air max pas cher, converse pas cher, nike blazer

oakleyses said...

hollister, louis vuitton uk, michael kors, sac burberry, true religion outlet, nike tn, vans pas cher, abercrombie and fitch, nike roshe run, nike air max, michael kors, louboutin, oakley pas cher, timberland, nike free pas cher, north face, nike trainers, polo ralph lauren, mulberry, ray ban pas cher, michael kors pas cher, new balance pas cher, ray ban sunglasses, air max, air force, barbour, sac longchamp, sac louis vuitton, vanessa bruno, lululemon, sac guess, sac louis vuitton, air jordan, sac hermes, louis vuitton, true religion outlet, nike free, air max, longchamp, hogan outlet, nike roshe, hollister, ralph lauren, north face, polo lacoste, air max pas cher, converse pas cher, nike blazer

oakleyses said...

hollister, herve leger, canada goose, insanity workout, nfl jerseys, canada goose, soccer jerseys, north face outlet, p90x, ugg, uggs outlet, canada goose, marc jacobs, new balance shoes, ugg pas cher, canada goose outlet, ferragamo shoes, canada goose uk, celine handbags, jimmy choo outlet, abercrombie and fitch, reebok outlet, mac cosmetics, longchamp, wedding dresses, ugg boots, beats by dre, mcm handbags, asics running shoes, ghd, giuseppe zanotti, babyliss pro, soccer shoes, canada goose jackets, ugg boots, ugg australia, lululemon outlet, birkin bag, mont blanc, north face jackets, nike huarache, nike roshe run, bottega veneta, chi flat iron, rolex watches, instyler, vans shoes, valentino shoes

oakleyses said...

montre homme, iphone 6 cases, thomas sabo, swarovski crystal, hollister clothing store, swarovski, lancel, rolex watches, moncler, ray ban, wedding dresses, air max, hollister, ugg, ralph lauren, coach outlet store online, pandora jewelry, converse, baseball bats, oakley, louboutin, juicy couture outlet, moncler, gucci, air max, pandora charms, hollister, moncler outlet, timberland boots, louis vuitton, toms shoes, juicy couture outlet, canada goose, vans, parajumpers, moncler, ugg, pandora charms, canada goose, moncler, moncler, links of london, converse shoes, moncler, supra shoes, karen millen