Reply To: Mega Millions

My comparison to insurance was that when you buy insurance, you know it is a negative value investment for you. That is, the EV of the payout is less than the investment. But, you buy it anyway because you are risk averse, so that in your world, the payout has a higher value than the investment. Because if your house burns down, you will value those dollars much more than you do now.

I am trying to say that the same theory explains why you are willing to make a negative investment in the lottery ticket, and I am pretty sure I am correct, but I can’t figure it out.