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Newsgroups: comp.lang.lisp
From: Erik Naggum <e...@naggum.net>
Date: Sat, 14 Jul 2001 16:37:47 GMT
Local: Sat, Jul 14 2001 12:37 pm
Subject: Re: Engineering Envy [was: Re: CL and UML]
* Kent M Pitman
> But a simpler argument prevails from the purchaser's point of view. Hope However, this artificial hope depends on the ignorance of the purchaser. > is not based on rationality, but on belief. For the $1 purchase of a > lottery ticket, they walk around all day with the hope of being a > millionaire, almost independent of the oddsd. There is likely no other > item you could sell them for a buck that would give them this kind of > hope, so even if they never win, they have been afforded extraordinary > value for their dollar. For instance, I have absolutely _no_ hope attached to a lottery ticket. On the other hand, I do have "hope" attached to insurance: I know that I will not be devastated financially by a disaster, should it happen with the same likelihood that I would win the lottery. The effect of owning a lottery ticket is likely the continuation of my current lifestyle, since I do not win. The effect of having insurance is likely a continuation of my current lifestyle, since I do not _lose_ everything should a disaster happen. However, if I do not buy the lottery ticket, the likelihood of continuation of my current lifestyle is marginally _increased_: I do not have to deal with the changes coming from winning the lottery. If I do not purchase the insurance, the likelihood is marginally _decreased_: I may have to deal with the changes coming from losing everything in a disaster. Insofar as planning goes, lottery tickets are just as high risk as disasters. I do not want disasters to befall me, and for the exact same reason, I do not want to win millions of dollars in a lottery: Both would upset my plans tremendously. If the disaster would not upset my plans noticeably, I do not need insurance. If they lottery payout would not alter my plans, I do not need the ticket, either. In which case, it would be a sheer waste of moeny to play the lottery, and a caculated risk to buy insurarnce or not. Now, "the Norwegian Dream" is, in quite amazing contrast to "the American > Finally, all these analyses of possible return amaze me. If you win big, This is grossly oversimplified, Kent. The real value of the principal is > the lottery pays out over 20 years, at least here. In effect, they are > paying 5% per year--i.e., the interest. They aren't giving you the > principal. They still have the money you won at the end of the 20 years. (roughly) maintained _because_ of the compounded interest. If you give away the interest, you give away that much of the principal's real value, both in comparison to what you would have gotten for it if invested elsewhere, as well as through inflation of the money supply and other loss of value of your currency relative to the goods you might want to exchange for it. If you manage to get 5.5% interest on the money, you will have the same number of dollars at the end of the 20 years as when you started, while having given away one million dollars a year. Suppose you have 2.5% annual decrease in real purchasing power during the same period, meaning that you would have to have almost 33 million dollars in 20 years to have the same buying power, you would need to get a 7% annual return on investment on those 20 million to "keep the money" while giving away 1 million dollars a year. If you manage to get 7% interest but did not give the money away, you would have had 77.4 million dollars after 20 years, which means that you have _actually_ given away 44 million dollars of real value at the end of those 20 years, but the poor idiot who got the money only received 20 million dollars that were probably spent each year for an ever decreasing number of real goods. If saved, it would probably maintain its total purchasing power after 20 years, but then you would have gained nothing in the interim, which would be dumb, so let the winner spend $500,000 adjusted for inflation every year. After 20 years with 3% inflation he would have about $10M left and could keep going through his cash like that for another 10 years. With more modest annual spending, the money could very well last for the rest of his life. > After that, they can "give it away" again. As I think I have demonstrated, that would require inordinate financial ability and would _not_ happen automatically. In other words, for a lottery to make money over time, it needs to keep a fairly large chunk of the money it continues to receive for lottery tickets to fulfill its obligation to continue to pay past winners. The way these things are run, they are essentially betting on there being enough future fools to pay for past winners. If they had had the financial savvy to maintain the value of their money, they would have found better ways to spend the prize money than give it away to lottery winners. All in all, it is a rip-off from start to finish, and the likelihood it will survive and all the winners will get their winnings to the last nickel is about as good as social security being there for us in 50 years, which is just another racket and barely-cloaked pyramid game run by ignorant politicians. However, lotteries basically being a way of financing stuff that nobody > Not that I'm quite sure what any of this has to do with Lisp. But that's ok. Gratuitous Common Lisp relevance: I computed all the above figures with a few simple financial functions written in Common Lisp. #:Erik You must Sign in before you can post messages.
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