One billion dollars can bring happiness, but the “how” might surprise you: It pays to play and give
The Powerball jackpot is worth $1.5 billion, $930M as a lump sum,* and you have a 1 in 292,201,338 chance to win! Even the economists and statisticians might support this gamble if not for taxes (see below for a way out). If you donate all but $100 million, your payoffs are favorable so long as less than 8.7 billion tickets are sold, more than 28 per American. (With so many people playing, you might be sharing the winnings, so it probably doesn’t pay off to play for your own gain. Even if you don’t win, hear me out — you can bring in a big win for the world. [updated 1/12/16 6:07PM to reflect $1.5B figure]
You’ve heard it before, winning the lottery isn’t the path to fulfillment. An analysis by Brickman, Coates and Janoff-Bulman (1978) famously concluded that winners are no happier. A recent New York Times article pointed to recent studies that have challenged the notion that lotteries don’t improve well-being, but this critique has significant limitations. One such study evaluated winners with mean winnings of £170 ($250). The other study touted benefits for winners with median winnings of just under £2000 ($2,900). Relatively small winnings could remove stressors like debt from your life, or secure time to do something you enjoy with the people you love.
However, the proclaimed benefits of this windfall income won’t improve much more with *JACKPOT* wins. Kahneman and Deaton (2010) suggest that household income over about $75,000 doesn’t generally improve your well-being — even inflating that figure to account for higher costs of living or more expensive personal goals leaves us with the same conclusion: even a lot of money can’t buy you a better life after a certain level of wealth. Giving purposefully, however, can make you happy.
Money can buy someone else a better life.
Many someones else. The National Center for Charitable Statistics counts over 1.5 million tax-exempt organizations in the US alone. GiveWell is an Effective Altruism group that helps you identify where your donation can reliably do the most good. Their key claim: if you are interested in having the greatest impact, invest in underfunded, evidence-based, impactful causes.
One of their top charities, the Against Malaria Foundation (AMF), distributes inexpensive and effective bed nets to people who need them most. A conservatively high estimate suggests that each $5.31 you donate can provide another net. 70% of Malaria deaths are children under 5, and nets work; you can perhaps most reliably save kids by donating to AMF.
AMF could put to use about another $100 million in scaling up their efficient operations, and many good people are donating now to make that happen. Even if you don’t win the lottery, go ahead and donate! $5 here won’t be wasted — it will directly support the purchase of more nets to be distributed without increasing overhead expenses.
If you have hundreds of millions of dollars, though, you might be able to dedicate it to even more neglected causes that don’t yet have a clear path forward for the everyday donor. The Open Philanthropy Project (OPP) addresses this issue by identifying such causes, researching them thoroughly, and advising philanthropists on how to give most effectively. Last year, OPP partnered with Kaitlyn Trigger and Mike Krieger (co-founder of Instagram) to help distribute the couple’s $750,000 to wherever in the world needs it most and can use it best. OPP was founded as a collaboration between GiveWell and Good Ventures, the organization Cari Tuna and Dustin Moskovitz (Facebook co-founder) established to give away most of their $8.3 billion wealth. Dylan Matthews wrote an engaging piece on OPP last year. These are the experts when it comes to getting the most out of the money you commit to making the world a better place.
So if I win the lottery, I know who I’m calling first.
Okay, after I text you, Mom. Lottery winners may be asked to give a chunk of their newfound money to hundreds of really important causes, including friends, family, and “friends.” Giving that money away is the best thing you can do. Yes, you might have a cause in mind already. Yes, you will be happier giving to them than spending it on yourself. To bring about the most happiness, though, reach out to OPP and find the best people to shepherd your philanthropy to its most effective beneficiaries. If you’re open to supporting one of the causes that needs you most, you will have the most amazing impact on real people’s lives. If you are committed to a cause, make sure you can support its most effective work!
Go ahead, write down the 5 things that bring you happiness and fulfillment now.
(Do it…)
Okay, now list the 5 things you imagine would bring you happiness and fulfillment after winning the lottery.
(Actually…)
Here’s a great TED talk by Harvard Business School’s Michael Norton
Heads up, he suggests giving it away!
By now, I think you’re just about ready to donate most of your winnings, so you just need to win. Here are some tips from around the web to avoid sharing the winnings [2]:
Don’t choose your own numbers: we people aren’t random, but we are alike. Choose random numbers greater than 31 (avoiding birthdays) that haven’t won before.
Shouldn’t I just donate my $2 to AMF instead of buying a lottery ticket?
Most days, it’s a clear YES — the odds of winning the lottery are so low, and the expected payoffs just aren’t worth it. This all changes with a commitment to giving and the $1.5 billion figure, which we will use postulating that it is not most effective to contribute the lump sum all at once. This analysis mirrors NPR’s.
$1.5 billion annuity — — — — — — — — — — — —$930 million lump sum
First, I’ll give you $100 million (pre-tax) to use as you would like — you might want to donate it later, but rest assured you aren’t giving away all of your fortune.
$1.4 billion annuity — — — — — — — — — — — —$830 million lump sumThen, I’ll remind you you only have to pay a federal tax of 39.6% on half of your donated amount.
Massachusetts follows the same rules, here, so you’ll contribute 5.1% on half of what’s left.
$1.1 billion annuity — — — — — — — — — — — — $649 million lump sum
Let’s say you split the pot at the beginning with one other lucky winner:
$508 million (or $285 million in a lump sum) can still be donated to charity (and yes, you still get your 100M :)
Powerball tickets cost $2, so given the odds your payoff ratios (including your personal $100M stipend after tax and the sum you donate) are:
Annuity: 1.97x ($3.94) as the only winner, or 0.97x ($1.93) if shared between two winners.
Lump sum: 1.20x ($2.40) as the only winner, or 0.59x ($1.18) if shared between two winners.
The odds are solidly in your favor, so long as you choose the annuity* plan! The lump sum will also give you less dramatically favorable payoffs. (Payoff ratios greater than one are good news!) The chance that any one person wins are, well, the same as yours, so we have to take into account the number of tickets bought. At the end of the article, I walk through a series of probability calculations that support this grand conclusion:
Your payoff ratio will be greater than one (it is a rational investment) so long as the number of tickets sold is less than 8.7 billion, or an outrageous 28 tickets per American in Powerball states! May the odds remain in your favor!
While it’s hard to believe, it’s true. Even so, don’t spend all your money on the lottery — these expected gains rely on a uniform value of each of your dollars. Most likely, you’ll lose all the money you invest in the lottery, even with a favorable payoff ratio. My suggestion, only throw in as much money as you can leave behind without giving something else up. If you won’t miss that $20, give it a gamble. Still not convinced? You can always donate!
You’re not alone.
I’m about to make my first lottery purchase with this logic — crazy, right? Tom Crist donated all of his $40 million jackpot. Allen and Violet Large gave away 98% of their $11 million winnings. Mark Zuckerberg plans to give away $45 billion of Facebook shares. You can even join Bill and Melinda Gates, who have already given away over $30 billion through the Gates Foundation and keep giving!
You can hold me to committing my winnings to improving the world, too! With numbers this big, it’s almost impossible to understand the enormity of the impact your donation can have on each person you help. Go and meet those people; know that each one, their parents, their kids, all people like you and me can overcome the barriers to engaging in their own pursuit of happiness. Join me in this promise, and make sure the winner hears about this idea. It is crazy, but it’s the secret to the lottery’s fountain of happiness.
Click here for the calculations
I definitely welcome feedback, disagreement, and corrections! I’m not a math genius, tax policy expert, or journalist. But, I do care and found this curious! Comment or email eappen@college.harvard.edu — I would love to get feedback and submit a condensed version of this post to a larger audience.
