So the jackpot in the Ohio lottery is around 25 million, and the chance of winning it is one in roughly 14 million, with tickets at 1 dollar a piece. It appears to me that roughly a quarter million tickets are sold each drawing; so, supposing you win, the probability of someone else also winning is 1 - (1 - 1/14e6)^{250000}=2%, which does not significantly reduce the expectation value of a ticket. So, unless I'm making a silly mistake somewhere, buying lottery tickets has positive expected value. (I find this counterintuitive; where are all the economists who should be picking up this free money? But I digress.)
I pointed this out to my wife, and said that it might be worth putting a dollar into it; and she very cogently asked, "Then why not make it 100 dollars?" Why not, indeed! Is there any sensible way of deciding how much to put into an option that has a positive expected value, but very low chance of payoff?
I did go a bit further towards alief by putting into my toy MC study, with the simple coin-toss game in your link, a bettor who puts in 50% of his bankroll every time - way, way beyond the Kelly fraction, and then having a think about how he managed to lose all his money. (Not literally, but enough that the remaining bankroll was 0 to my printout accuracy.)In ten thousand iterations my longest win and loss streaks are both of ten games. A loss streak of ten games will reduce this bettor's bankroll by a factor of 1024. But ten winning games will only increase it by about a factor 80. On the other hand, with the Kelly fraction of 4.5%, ten losses reduce your bankroll by about 40%, while ten wins increase it by 62%. The asymmetry in these specific examples is somehow more convincing than the final numbers from the toy MC run.
So the jackpot in the Ohio lottery is around 25 million, and the chance of winning it is one in roughly 14 million, with tickets at 1 dollar a piece. It appears to me that roughly a quarter million tickets are sold each drawing; so, supposing you win, the probability of someone else also winning is 1 - (1 - 1/14e6)^{250000}=2%, which does not significantly reduce the expectation value of a ticket. So, unless I'm making a silly mistake somewhere, buying lottery tickets has positive expected value. (I find this counterintuitive; where are all the economists who should be picking up this free money? But I digress.)
I pointed this out to my wife, and said that it might be worth putting a dollar into it; and she very cogently asked, "Then why not make it 100 dollars?" Why not, indeed! Is there any sensible way of deciding how much to put into an option that has a positive expected value, but very low chance of payoff?