seem to treat currency
! Conventional wisdom
has it that lotteri
es are a tax on the stupid
(although Greg Egan
considers them a tax on hope
, which is closer to the mark). But here's another way of analysing why people buy lottery ticket
: I don't).
Money is nonlinear. The utility function for having $X is not linear in X! Rather, for very low values of X it is much shallower. If you see a penny somewhere, often you won't bother to pick it up. But the cost of doing so is far less than 1 penny. The point is you don't expect to be able to get 1/100th the utility of $1 out of 1 cent (of course this does not apply to 100 cents; just to a single cent). So you don't mind losing 1 penny.
Lotteries are the same. I buy a ticket for $5 which with probability 10-6 will get me $2.5M. WHY? Well, evidently I don't think the loss of $5 is so great, compared to a gain of $2499995. With $2.5M, I could buy houses, invest wisely, etc.; with $5, I can't do any of that. They're just not the same sort of commodity!
Note: this nonlinearity is the reverse of that in dragoon's writeup. There, more money is worth less as you get more of it; but in reality, more money is worth more as you get more of it. This has an obvious bearing about the fairness of capitalism.