It's quite clear that the expected return on a lottery ticket is less than 1.
However, I think it can still be argued that buying lottery tickets is still a economically rational decision by consumers.
There are a few lines of reasoning:
- The consumer isn't just buying an expected payout, they're buying 'a dream'. Much like watching a fantasy movie or reading a book is an economically rational decision, (even though the story isn't 'real'), the thoughts of 'what would I do if I won the lottery' is a commodity that the consumer is buying.
- The value of a lottery payout is worth more than its face value. When analysing the expected return on an ordinary decision, we assume that the return is given in the same context. (For example when Bob is choosing between Stock A, Stock B or saving his money in the bank, regardless of which payout he gets, the rest of his circumstances stay the same). Winning the lottery means, for most us, that we'd quit our jobs, which is worth more than just the payout itself.
- It also needs to be considered that the cost of the lotto ticket is often mitigated by that it can also be partially considered as charity.
The question is - is this subject well considered in economics?
Perhaps a good answer would iterate the economic reasoning of buying lottery tickets.
NB. I'm planning asking a separate follow up question regarding point two, question at what lottery payout the expected return increases.