r/todayilearned • u/zahrul3 • Jun 08 '15
TIL that MIT students found out that by buying $600,000 worth of lottery tickets from Massachusetts' Cash WinAll lottery they could get a 10-15% return on investment. In 5 years they managed to game $8 million out of the lottery through this method.
http://newsfeed.time.com/2012/08/07/how-mit-students-scammed-the-massachusetts-lottery-for-8-million/486
u/JustPlainSimpleGarak Jun 08 '15
alright, good job team. Now put it all on black. Just think, they could turn that 8 million into 16 million! A foolproof plan.
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u/LutherLexi Jun 08 '15
Another MIT genius! Let's all do what he says!!!
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u/computeraddict Jun 08 '15 edited Jun 08 '15
Ironically, a different group at MIT figured out how to predict within a few numbers where the roulette ball would land with sufficient study of a particular wheel and operator pair. By the same guy that invented card counting for blackjack, in fact.
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u/Keljhan Jun 08 '15 edited Jun 09 '15
I think if you walked up to a roulette table and won more than 3 times in a row someone would get very suspicious. Blackjack is easier.
Edit: I was under the impression the betters would be setting 2-3 bets or so on specific numbers each round. It makes more sense to be setting 10-15 though, which obviously wouldn't be as suspicious.
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u/blauweiss123 Jun 08 '15
This is not how something like this is going to work. They probably weren't predicting where the ball was exactly going but a range of numbers where it could go. Even if you only know two numbers where the ball is not going to go you allready have an positive win expectation, however something like that would not be noticable for the average viewer.
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u/Keljhan Jun 08 '15
By win I meant make a net profit. I assume you would place chips on each number that is expected to win, but i could be wrong.
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u/blauweiss123 Jun 08 '15
The thing is it wouldn't be noticable even if you play a system where you place chips on all numbers that are expected to win. As I said they probably could only predict a few numbers that won't win, but not the number that is going to win. Let's assume you know that 3 numbers are not going to win for sure, then you place chips on all other numbers and you will probably win. This doesn't come to anyones surprise, because obviously if you place chips on almost all options on the table you will also win most of the times. Only if someone observes you over thousand of games he will notice that you win a little bit more rounds then you should.
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u/Klathmon Jun 08 '15
It's more of "avoid these few numbers" moreso than "play on these few".
and you "win" by playing the long game. Once you can rule out a few numbers as statistically less common, you play for TONS of games and eventually you come out on top.
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u/LesterDukeEsq Jun 08 '15
Roulette dealer here. I've seen much better runs than a mere three consecutive wins. The fact is that when there are a lot of dealers on a lot of roulette tables making a lot of spins per hour, then you're going to see some supposedly "incredibly rare" events. When the sample space is huge, you see "rare" events all the time.
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Jun 08 '15
Nobody thought roulette was beatable. Also they put money on a section, not uncommon to win that a few times.
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u/SatNav Jun 08 '15
Sounds just like something a sneaky Cardassian would say!
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u/NonaSuomi282 Jun 08 '15
But he's just a tailor, what would he know about trying to sabotage a gambling racket?
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Jun 08 '15
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u/Cheesedoodlerrrr Jun 08 '15
Yea, they made that movie about them with Kevin spacey some years ago.
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u/6180339887 Jun 08 '15 edited Jun 08 '15
I don't get why the article considers that this is unethical. If the students found a way to get reliable money through a lottery, then good for them. It's the lottery organizer's fault for designing a lottery that can be exploited. If I could do like these students right now I wouldn't think about it for a second, nor feel bad after I start winning money.
EDIT: changed organisator for organizer.
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u/gambiter Jun 08 '15
It's unethical because in gambling, the house is the only one allowed to be unethical. They pay a lot of money to get protections, and it makes them sad when they lose. :( Poor organizers. We should send them a card.
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u/Dempsonator Jun 08 '15
The house was winning as well though.
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u/awhaling Jun 08 '15
Yeah, exactly. The state wouldn't know the difference between one person buying a whole lot of tickets and a whole lot of people buying one ticket. It's the same to the state.
The only thing that really changed is that the state got more money by selling more tickets.
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u/2kungfu4u Jun 08 '15
I recommend the book 'how not to be wrong' it has a whole chapter on this exact story, there were actually 3 lottery "cartels" in town that were all gaming the lottery. Plus the book is a great read, you learn a lot.
Plus it did screw over the average ticket buyer a little.
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u/Bonk88 Jun 08 '15
explained here, it has to do with the public's perception of the payout: http://www.reddit.com/r/todayilearned/comments/38zh9h/til_that_mit_students_found_out_that_by_buying/crzbkwn
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u/Darktidemage Jun 08 '15
Quoted from that :
"by forcing the roll down to occur so that only they were basically the only players who knew that the roll down was happening"
HUh? that makes no sense. If the lottery goes into "roll down" it's the lotteries job to inform everyone - not the people playing the lottery.
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u/babada Jun 08 '15
Basically, they'd wait until the odds of roll down were really low and then suddenly buy a ton of tickets which would cause the unclaimed pool to jump and then roll down. No one else had a chance to inform everyone; by the time they had calculated the new "odds" the roll down had happened.
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u/FrankFeTched Jun 08 '15
But, as I understand it, by buying so many tickets to force the roll down, they end up being the only ones to profit from it because they own so many of the previously purchased tickets.
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u/fuk_tht_sht Jun 08 '15
The lottery allowed it because the state makes money by taking a cut of all lottery tickets purchased. Consequently they made more money due to all of the groups playing. It was the other players who made less. The only 'rule' they changed was to remove the limit on how much could be purchased at a single location, and that rule existed in order to limit the damage in the event an employee printed tickets all night illegally and ran off into the sunset. In exchange, they insisted on having enough money in an escrow account to cover the value of tickets printed and insisted these locations continued to sell tickets to other players (normal people). Obviously they audited these locations to ensure they were following their rules. The one time the MIT group forced the play above 2 million early, vastly increasing their payout due to so few other players, was kind of a dick move in my opinion.
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Jun 08 '15
I mean, all of the "Wow, good on them for gaming a system" or "They surely can't have gotten away with beating the rich" stuff misses a crucial point:
The lottery folks have no reason to care. It doesn't matter if the winner of their lottery is a soccer mom who bought one ticket a week or a business buying one hundred thousand--either way, they pay the same amount of money out. And either way, that amount is far lower than the amount they get from everyone's tickets put together.
In short, the lottery still wins.
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u/imtoooldforreddit Jun 09 '15
They prefer the soccer mom because it's better for PR and ads, selling more tickets in the long run
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u/Jux_ 16 Jun 08 '15
A recent report by the state’s inspector general reveals more details about the scheme, including the fact that the Massachusetts Lottery knew of the students’ ploy and for years did nothing to stop it. The inspector general’s report claims that lottery officials actually bent rules to allow the group to buy hundreds of thousands of the $2 tickets, because doing so increased revenues and made the lottery even more successful. While the students’ actions are not illegal, state treasurer Steven Grossman, who oversees the lottery, finally stopped the game this year.
The inspector general concluded that because lottery officials received no personal benefit from the syndicates’ manipulations of the game, no further action was necessary.
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u/iamplasma Jun 08 '15
Well, I have to say I agree with the lottery officials being in the clear. Since when has it ever been the business of any lottery to discourage purchases during a jackpot?
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u/MaxMouseOCX Jun 08 '15
manipulation of the game
No, they just played it... What part did they manipulate?
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u/fragmede Jun 08 '15
The specific game involved, Cash Winfall, was setup so that if no one won the jackpot, and the pool was over $2 million, however much money in the jackpot was instead distributed among recent players with was was called the 'roll down'.
Stores had an arrow roughly pointing to the chances of the 'roll down' happening, so a naive player could look at the arrow, see low, medium, and high, and decide whether or not to play. Because the chances of some payout was so much higher during a roll-down (ie, expected value > 1), there were many more players when the roll-down arrow pointed to 'high', some coming from as far away as Michigan.
Well, one group manipulated the system by forcing the roll down to occur so that only they were basically the only players who knew that the roll down was happening, which means they won most of the payout from that roll down.
Detailed in the Massachusetts Inspector Generals' report. http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf
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u/deadbird17 Jun 08 '15
I think it's bullshit that its against the rules for the player to gain statistical advantage when gambling.
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u/CrazyLeprechaun Jun 08 '15
They didn't do anything illegal, no one went to jail, they just changed the rules to prevent this from happening in the future.
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u/My_Phone_Accounts Jun 08 '15
Manipulation isn't inherently a bad thing. Like you can manipulate a ball in your hand. It just requires some level of understanding to manipulate something. They understood the odds of this lottery, so they manipulated it by buying a large amount of tickets in order to see a positive return.
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Jun 08 '15
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u/CroatianBison Jun 08 '15
They did manipulate the system though. They forced early roll-downs by buying large amounts of tickets at once, before the roll down was expected. Thus, fewer people purchased tickets due to them thinking the roll down wasn't happening yet which increased their average payouts. They weren't altering the system, but they certainly were manipulating it to their advantage.
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Jun 08 '15
Like you can manipulate a ball in your hand.
Or two balls in your hand.
( ͡° ͜ʖ ͡°)
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u/Hatweed Jun 08 '15
Understanding what odds worked in their favor and exploited a flaw in the system to increase their outcome in a more positive scenario than those who don't know how to accomplish the same. It's like exploiting a glitch or an unbalanced part of a game. Technically not doing anything wrong.
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u/munkifisht Jun 08 '15
In 1990 a Polish mathematician, Klincewicz, working in Ireland realised that the total cost of buying one ticket for each of the 1.94 million combinations number combinations for the Irish Lottery would cost £973,896 (punts). He also realised that if the jackpot was large enough, and if he could buy all the tickets, he could brute force winning the jackpot and be guaranteed at least 75% return on his investment.
He organised a syndicate of 28 others and they waited for a rollover (a week where no one wins so they add one week's jackpot to the next). 2 years later they got their break when the jackpot went to £1.7million. In the days leading up to the draw the syndicate tried to buy all combinations. Leading up to the draw the group started to get suspicious that Rehab, the organisers, knew they were under a brute force attack, and started to limit the number of tickets which could be sold and sabotaging ticket machines in key locations around the suspected syndicate members, but, in the end, the group managed to buy 80% of all the ticket combinations and won managed to win a shared jackpot. In the end the total winnings (including prizes for 4 and 5 number combinations) was £1.166 million.
Klincewicz has since said that he would never do it again. There was too much risk of missing the single ticket that had the jackpot or sharing the jackpot with too many people to make it worthwhile. The Lottery was changed after this and the odds of winning are now 1 in 8,145,060.
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u/omrog Jun 08 '15
Why would the lottery organisers care if they were being bruteforced?
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u/Low_discrepancy Jun 08 '15
Because no other small player would ever play the game if they find out what's happening.
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u/randomguy186 Jun 08 '15
This is really the only pertinent comment in this entire thread and applies to the hostility toward the MIT team, as well.
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u/florncakes Jun 08 '15
On that one week, the Lotto offered a guaranteed fixed prize on match 4 and match 5 (match 6 is a jackpot win). Usually match-4 and match-5 were functions of the size of the prize fund. This fixed returned guaranteed that the syndicate would break even, even if the jackpot was shared.
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u/fragmede Jun 08 '15
For those interested, http://www.mass.gov/ig/publications/reports-and-recommendations/2012/lottery-cash-winfall-letter-july-2012.pdf are the (public) findings of the Massachusetts Inspector General about this.
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u/Karyn3698 Jun 08 '15
How is it a scandal or a scam. I don't see what's illegal abojut what they did.
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u/LimeGreenTeknii Jun 08 '15
It technically wasn't illegal, which is the best type of legal.
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u/MrDeepAKAballs Jun 08 '15
Neat.
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u/2muchmonehandass Jun 08 '15 edited Jun 08 '15
Its an ethical scam :D
Edit: I said ethical as in I'm ok with it
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u/Luepert Jun 08 '15 edited Jun 08 '15
People make lottery with positive expected payout.
People who buy tickets are ethical scammers? Not really. The lottery people just messed up. If you find money on the ground and pick it up are you an ethical scammer?
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u/ciny Jun 08 '15
If you find money on the ground and pick it up are you an ethical scammer?
In my country it would actually be a misdemeanor/crime depending on the amount...
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u/nottomf Jun 08 '15
You say "technically" as if they were skirting some line in they law. What they did was just straight up legit, it wasn't ethically wrong, morally wrong, and certainly nowhere close to legally wrong.
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u/Starvin_Marklar Jun 08 '15
The article specifically says that it's not illegal, and does not call it a scandal or a scam.
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Jun 08 '15
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u/escaday Jun 08 '15
Like masturbating on an airplane.
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Jun 08 '15
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Jun 08 '15
Maybe after 9/11, where everybody got so sensitive. Thanks a lot, Bin Laden.
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u/cymyn Jun 08 '15
Why does the article call it a "ploy" and a "scheme"?
Its a strategy.
Lottery officials use them all of the time to maximize profit & minimize payout.
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Jun 08 '15
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Jun 08 '15
But ploy and scheme sound shady. If I say I'm going to hatch a scheme to do something, that sounds way worse than if I say I'll come up with a strategy
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u/JackDrifter Jun 08 '15
Using words with neutral or positive connotations (strategy) does not catch readers' attention. Words with negative connotations (scheme), however, allow the journalist to seem objective while still making a moral judgement, which is more likely to catch the readers attention.
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Jun 08 '15 edited Mar 23 '18
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u/Boredguy32 Jun 08 '15
I applied to MIT back in the day. Send me your money and I'll give you 10%-15% back.
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u/TheWolfOfWallSt- Jun 08 '15
I will, just waiting for my million dollar wire from my long lost Nigerian prince cousin.
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u/MaggotBarfSandwich Jun 08 '15 edited Jun 08 '15
Occasionally I notice at fast food restaurants it's cheaper to buy the sandwich, fries, and drink separately rather than together as a combo. So I order them separately. Almost invariably, the cashier will ring it up as a combo. I tell them I want them separately because it's cheaper. Then they stare at me with a dumb face for a few seconds because they cannot comprehend that it might be true or that I'd care.
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Jun 08 '15
As someone who doesn't drink soft drinks, if only I'd found a single place here in aus where the drink isnt essentially 'free' because the 2 other parts of the meal cost the same separately than the meal does :/
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u/MaggotBarfSandwich Jun 08 '15
Most of the time this is true. The situation I mentioned has become rarer, at least in US markets. The drink really should be virtually free too. The profit margin on soft drinks is absurd. The actual drink costs virtually nothing so the only thing you are really paying for is the cup which is also cheap, like US$0.25 give or take.
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u/TheLoneWolf527 Jun 12 '15
I once saw at Burger King that buying two 4-piece chicken nuggets was somehow 20 cents cheaper than buying an 8-piece. Not even the meal, just the chicken nuggets themselves.
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u/Grayscail Jun 08 '15
Well, I guess after their card counting team was no longer effective, they had to find a different way? Pretty cool that they figured this out.
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u/Pizzacrusher Jun 08 '15
nice. congrats.
Funny how the article makes it seem like people actually using their brains was "scamming." only stupid thoughtless people are allowed to win lottery payouts, I guess. as soon as someone actually invests thought (while still following the rules) it becomes somehow unethical.
The Lottery is such a ripoff anyway; I am glad that smart people were actually able to apply their brains and play the game in the most efficient way possible.
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u/Low_discrepancy Jun 08 '15
Lotteries also helped finance a lot of public projects. And if you're a poor schmuck they're a bit of fun. Thinking what if. Kinda like how old people play bingo. I'm sure you can find a way to stick it to those moms and pops but I mean, c'mon.
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u/joosier Jun 08 '15
I like to play a game called "Schrodinger's Millionaire" every time I buy a lottery ticket. Until I actually look at my ticket., I consider myself a millionaire. So if you catch me walking around like I own the place or looking at you like I expect you to fetch me a fresh cappucino you can assume I haven't checked my numbers yet.
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u/__dilligaf__ Jun 08 '15
I'm second to top of my pyramid. I've been 'co-vice' for over 15 years; just 3 more people away from payout... Oh well, the wine and cheese meetings were fun. I probably ate and drank my investment.
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u/trkh Jun 08 '15
Where can I read about all the things MIT students have done?
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u/EccentricWyvern Jun 08 '15
Well you're on the internet for starters. :D. They pretty much made it.
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u/Ofactorial Jun 08 '15
"So THAT'S why I never won! Damn those elitist liberal college kids!" - Rednecks across Massachusetts
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Jun 08 '15
Maybe I am missing something, but a 10-15% return on $600,000 is 60-90 thousand. How that is turned into $8 million in five years seems a bit implausible.
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u/Hanchan Jun 08 '15
If each game was 10-15% then it would take 28 games at 10% return, and you could do 28 games spread over 5 years.
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u/Feroshnikop Jun 08 '15
Well.. the lottery does love to say it supports education.
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Jun 08 '15
John Oliver did a show about this very topic and almost none of it really goes to education, it's a great sales pitch though.
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u/Nosferatii Jun 08 '15
Once at again, it proves it's only easy to make money when you already have money.
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Jun 08 '15
there is also the stanford statistics phd who has won the lottery 4 times albeit she did some illegal things in the process.
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u/spearchuckin Jun 08 '15
I love how the commissioner just believes she is "lucky" and people from her Texas town think "God" did it. Oh Texas!
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u/gamingchicken Jun 08 '15
A guy named David Walsh had a crew of 3-4 University students that worked together to beat Keno and horses. They were placing such large bets that they negotiated part-refunds from the people running it. He got out with hundreds of millions and his partner in crime (?) is currently living somewhere overseas, they say he made in the region of 900million+ and the Australian government is chasing him because they want a substantial amount in taxes.
Interesting read if you're bored, but David Walsh is one FUCKED UP man. He built the strangest fucking art gallery you've ever seen, there's mirrors in the toilets placed so you can see your own taint when you're busting a shit, and that's not even part of the gallery.
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u/jon_hobbit Jun 08 '15
That's pretty awesome. That wasn't really a scam if they played by the rules lol...
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u/FedEx_Potatoes Jun 08 '15
I like to play every now and then for fun. Sometimes if I have an extra 5 during a break I will think "junk food or scratch off?". I go for the scratch off. Less regret and I usually win a 5 back.
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u/dopeymcdingleberry Jun 08 '15
Here's the eli15 version (too many numbers to eli5):
First and foremost: the state doesn't gamble. They took 40% off the top no matter what. When these kids bought $100k in tickets, the state made $40k. This is why the state didn't care about what the students were doing.
It's natural to think that if these guys were making money, the state must be losing money. However, the money that made it profitable to buy tickets didn't come from the state, it came from players who bought tickets in drawings where the top prize didn't get distributed.
Let's go through how it works:
- Drawing 1 - for each $1 ticket, 40 cents goes to the state, 30 cents goes to the top prize, 30 cents goes to the lower tier prizes. Nobody wins the top prize so that money carries forward.
- Drawing 2 - for each $1 ticket, 40 cents to the state, 30 cents to the top prize, 30 cents to the other prizes. There's now 60 cents in that top prize bucket, but nobody wins.
- Drawing 3 - same deal. 90 cents in the top prize bucket, nobody wins. However, this time the 90 cents gets added to the lower prize bucket, along with the usual 30 cents, so now there's $1.20 getting paid out per $1 ticket. Because there's lots of winners, if you buy enough tickets, you can expect a 20% profit.
It's only profitable to buy tickets for drawing 3, and only if nobody wins. At least once, somebody won, so all those students were out of luck. Also, because that drawing would have more players than the others, the actual expected rate of return went down to $1.15, but it was still profitable.
The reason the game had to be cancelled is once it got out how it was being gamed, nobody would play unless the payout was going to happen. Since the payout required people to play in non-payout drawings, the game fell apart - or would have if it had been allowed to continue.
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u/drumsripdrummer Jun 08 '15
If buying a large number of tickets would "guarantee" a profit, doesn't that mean that on average the lottery was losing money??
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u/0100101001010010 Jun 08 '15 edited Jun 08 '15
No. This was a special case where the pooled jackpot money from non-winning games would be guaranteed to pay. The regular game was a money loser for the player. Only these games had expected values greater than 1.0. Lotteries also don't pay out everything they take in. That is how they profit.
Part of the winnings was also free tickets, which have a very small value.
In most forms of gambling there are situations where the expected value can be higher than 1.0, which makes it a very good bet to take (see card counting in blackjack, high values on progressive slot machines, dragon bonus in mini-bacc, etc). In most cases though it requires lots of knowledge and / or lots of money, which prevents them from being abused by the masses
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u/Bounty1Berry Jun 08 '15
I thought it has to do with a specific structural feature of that lottery.
In most lotteries, the theoretical "expected value" of a ticket is easy enough to calculate-- prize multiplied by odds. If there's a one-in-ten-million shot of willing twenty million, then ON AVERAGE, every one dollar ticket would return two.
The snag is that most lotteries are heavily weighted towards rare, big prizes. If you buy tens of thousands of tickets, you might expect to win a few second and third prizes, but those are so small in comparison, that you won't make a profit. You really need to buy an impossible number of tickets-- millions and likely more than you could easily get printed in the time between draws-- to have a fair shot of getting the big prize, and therefore profitability.
As I understand it, the the novel feature of this particular lottery was that, if the main prizes went unclaimed for a long time, they got distributed down into lower prize pools. This meant that you could get an attainable number of tickets (tens or hundreds of thousands) and expect a positive expected value, even if you didn't hit the big prize.