How MIT Students Gamed the Massachusetts State Lottery

According to campus legend, in 2005 an MIT student named James Harvey was about to complete his mathematics degree. To finish his degree he needed to complete a project. While searching for a project, he became interested in the lotteries. He stared out interested in analyzing well-known lotteries like Powerball and Mega Millions but soon became intrigued by Cash Winfall.  This was a lottery game that was only available in Massachusetts. The game was first launched in 2004 and had a unique format that grabbed James’ attention. The rules of this lottery were similar to most lotteries:  players had to choose 6 numbers for a $2 bet. If they matched all six in the drawing, they won a jackpot worth at least half a million dollars. There were also smaller prizes as well for matching 5, 4, and 3 numbers. However, Cash Winfall had one important difference from other lotteries. Consider the example of Mega Millions, when nobody wins the jackpot, it rolls over and increases. It keeps on increasing until someone wins the jackpot. On one hand, the rollovers generate good publicity for Mega Millions but on the other hand, it can be a long time before someone finally wins the jackpot. If the Mega Millions lottery fails to produce a smiling face and giant checks for too long, people might stop playing. To solve this, the Massachusetts lottery decided to limit the jackpot. They created a special rule, called a “roll-down”.  Under this rule, if the jackpot rose to $2 million without a winner, the jackpot would stop increasing and instead be split among the players who had matched 3, 4, and 5 numbers. An important feature of this lottery was that before each drawing, the lottery published its estimate for the jackpot based on ticket sales from previous draws. Many lotteries publish estimates, but in the case of Cash Winfall, when the estimate reached $2 million, players knew that there was going to be a roll down if nobody matched all six numbers. It was not long before people realized that the odds of winning money were a lot better in a roll-down week than any other time and ticket sales always surged before roll-down drawings. With his analysis, James realized that it was easier to make money on Cash WinFall than on other lotteries. Not only that, Harvey realized that expected payoff were sometimes positive, a minimum of $2.50 on a $2 ticket, during a roll-down. Therefore, Harvey established a betting group with some of his fellow MIT students in February 2005. About 50 people chipped-in money for the first batch of tickets- which raised about $1,000 in total. They successfully tripled their money when their numbers came up. Over the next few years, playing the lottery became a full-time job for James, and by 2010, he and his fellow team members incorporated as a business. They named their business as Random Strategies Investments, LLC, after their MIT dorm accommodations. Read about the big turn in the lottery syndicate formed by James Harvey in our next piece. Till then, stay tuned!

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