25 Oct

Margin of Error in Estimating Lottery Jackpots

The largest lottery jackpot ever – and why it wasn’t.

The Largest Lottery Jackpot Ever – And Why it Wasn'tEvery US resident from Nome, Alaska to the US Virgin Islands heard the news last week. The Mega Millions Lottery was said to be worth $1.6 billion; the highest lottery jackpot in global history. Even people in other countries heard the news, rushing online to purchase a ticket at one random iLottery website or another.

When a single ticket, belonging to a woman in South Carolina, turned out to be the winner, the excitement was over. At least, for everyone else it was. But the media wasn’t done with the story. As it turns out, the world’s largest lottery prize wasn’t quite so large after all. It was, in fact, the second largest in lottery history.

The Largest Lottery Jackpot Ever, and Why it Wasn’t

The jackpot prize that had been promoted at a staggering $1.6 billion only turned out to be worth $1.537 billion. Who cares, right? It was still a phenomenal amount of money. It’s sure to change the life of the lucky winner, and perhaps most of her friends and family, as well. Does it matter that the estimate was wrong?

It does matter, to some extent. Not because that fortunate woman was expecting another $67 million. I seriously doubt she cares one iota. It matters to some, though, simply because it was false advertisement. Lottery officials were so quick to claim this drawing as the largest in lottery history, when it was actually the second largest. The title of largest still belongs to the January 2016 Powerball drawing, netting $1.586 billion.

The Flaw in Estimating Lottery Jackpots

Estimating anything is just that—an estimate. There’s no exact science to it. An abundance of data analysis goes into the process to produce the most accurate results possible. There are no guarantees that an estimate will be accurate.

In this case, there are 44 US states, plus Washington D.C., and the US Virgin Islands, selling tickets for the Mega Millions. Among them, only 11 US states play a significant role in running the national lottery. One of them is the Maryland Lottery, headed by Director Gordon Medenica.

According to Medenica, the larger a lottery jackpot grows, the harder it becomes to estimate. Lottery organizations in each of the 11 states compare sales records on a daily basis. The information is put into a computer, along with historical sales data. The computer crunches the information and spits out an estimate.

Missing the mark by $63 million might sound like a lot. However, comparatively speaking, their figures were only off by 4%. Unfortunately, that 4% was just enough to put the jackpot at the second-largest in lottery history.

The real question is, did lottery officials intentionally over-estimate last week’s Mega Millions jackpot?

You Can’t Market Second-Best

Lottery officials gave their explanations as to how estimating lottery jackpots works, and how the margin of error can grow with the size of the jackpot. However, they also acknowledge that promoting this drawing as the “biggest ever” did help them raise maximum awareness.

Peggy Stover is a professor of marketing at the University of Iowa College of Business. She explains that the use of first-ever and best-yet marketing is paramount to attracting attention. Attempting to market anything as ‘second best‘ just doesn’t work.

In her words, “Whether it’s your first kiss or first time on a roller coaster, people tend to remember the first of anything much more vividly than the second.”

People might feel a slighted by the possibility that officials stretched the truth. But in the greater scheme of things, it doesn’t matter whether it was the largest lottery jackpot ever or not. It was over $1.5 billion—an amount almost anyone would be willing to pay a few dollars for a chance to win.

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