More on lotteries

Thought experiment: Suppose I use my Scientist-fu to create a device which will destroy the world. Then I hold the US government to ransom, and since I’m clearly now too large to fail, I get a payout of a few trillion. Pocket change, really. Then I set up a lottery, open to the public. Tickets are free. For every ticket, there are the following payout probabilities:

99.9999%: Ticket holder gets a million dollars.
0.0001%: I pull the switch on my doomsday machine, destroying the world.

How long until the world is destroyed? I think not very long at all. People just don’t process numbers like ‘million’ very well. And it only takes one in 300, across the population of the US, to make the expectation value of ‘number of world destructions’ greater than one. What’s more, for a given individual, the probability really is negligible. It’s practically free money!

This thought experiment seems to have some relevance both to global warming and to the LHC-black-hole discussion. I’m not sure what, though.

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Filed under Economics, Random thoughts

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