Submitted by the University at Buffalo
Humans are, by nature, irrationally risk-averse, says Michael Poulin, associate professor of psychology in the University at Buffalo College of Arts and Sciences.
"Most people would prefer to receive $50 than take a 50 percent chance at $100, even though the monetary value of both situations is exactly the same," says Poulin, who has done research looking at risk perceptions. "People would rather cling to what they have than take a chance at something better.
"The average person is more risk-averse than is rational."
So why, then, when it comes to the $1.4 billion Powerball jackpot, are people buying tickets in droves?
For one, Poulin says, playing Powerball is actually the rational thing to do.
At present, the odds of winning are 1 in 292.2 million, and the jackpot is $1.4 billion. The value of playing Powerball, Poulin says, is the odds multiplied by the payoff, which is about $4.79 - more than the $2 it costs for a ticket.
"In other words, the real chumps are those of us who haven't yet bought a ticket," he says.
But there is something else at play when it comes to Powerball and the human psyche, Poulin says.
At a certain point, he says, outcomes look too good to pass up. And that is what we are seeing here.
"Humans have vivid imaginations, and even an outcome that is almost certainly not going to happen can feel tantalizingly close if we dwell on the possibility," Poulin says. "Combine that with incurring only a small loss for the chance to dream, and many people will take it."
When people pit spending $2 versus missing out on the chance of a lifetime, their imaginations come into play and the risk becomes worth it, he says.
"The risk we create here is imagining how we would feel if we didn't try," Poulin says. "People start thinking, 'What if I lost a chance at $1.4 billion. I would kick myself.' It fits in with the risk-averse theme, but it's an emotional kind of risk."