It is generally well-known that buying lottery tickets do not make sense since the expected value of the lottery ticket is typically less than the price we pay for the ticket. One way to rationalize the act of buying such tickets is to appeal to:
A) The fact that people tend to over-estimate small probabilities.
B) The endowment effect.
C) The conjunction fallacy.
D) Preference reversals.

Question

Quizplus · Accepted Answer

The act of buying lottery tickets, despite the negative expected value, can be rationalized by the fact that people tend to overestimate small probabilities. This means individuals might perceive the very slim chance of winning as more likely than it actually is, making the purchase of a lottery ticket seem more appealing than it logically should be.

It Is Generally Well-Known That Buying Lottery Tickets Do Not