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Statistics for Business and Economics: Excel/Minitab Enhanced
Heinz Kohler
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Statistics in the News: Chapter 8 The Theory of Probability

State Lotteries' New Strategy

Make no mistake about it: Lotteries run by various state governments are big business. How to run them, however, can be controversial. Recall Application 8.4 in the text which notes how Connecticut's lotto chief lost his job when he didn't want to lower the odds of winning that gamblers faced.

Recently state lottery commissions have been racing one another in the nationwide gambling stampede. None wanted to fall behind and see their residents' gambling dollars go after out-of-state games. That's what clearly happened during the summer 2001 Powerball game during which 600 million tickets were sold. Attracted by a $295 million jackpot, New Yorkers clogged the highways in search of a Powerball ticket in Connecticut. And at the same time, you could buy tickets for the Big Game in Massachusetts, promising a prize worth $90 million.

But the odds of winning were extremely small, and that was deliberate. Lottery officials found that reducing the chance of winning could actually boost ticket sales: The lower the odds of winning, the more the jackpots go unclaimed and roll over into bigger grand prizes. And a few big jackpots sell many more tickets than weeks' worth of small jackpots.

Thus, taking a lesson from probability theory, Powerball officials in 1997 applied the combination formula to lower the odds of winning its jackpot from 1 in 55 million to 1 in 80 million. Similarly in 1999, the Big Game narrowed the chances of a big payoff from 1 in 53 million to 1 in 76 million. And sales accelerated!

Sources. Adapted from "Big Lotteries' Real Losers," The New York Times, August 29, 2001, p. A22, and http://www.masslottery.com.


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