Math problems

Alex Tabarrok at Marginal Revolution frets that as people age, a shrinking proportion answer $400,000 to the following question:

If five people all have the winning number in the lottery, and the prize is $2 million, how much will each of them get?

But of course the answer is not $400,000. As most big-ticket lottery stories point out, the prize is a nominal amount spread out over something like 20 years. And in most cases, the winners take the present value of the winnings. Which is less than $400,000 as long as interest rates stay above zero.

On top of that, there’s taxes to think about, which are always withheld from winnings that big.

So, contra Tabarrok, maybe people are getting smarter as they age.

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3 thoughts on “Math problems

  1. dave says:

    cool dude

  2. Sorry, the answer to the question, as framed, is $400,000.00. Of course, the question, as framed, does not reflect the reality of how state lotteries are designed.

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