Income Effect and the Mega Millions Lottery
The Mega Millions Jackpot is up to an estimated $355 million dollars. The article talks about some ideas to think about if you are lucky enough to win the jackpot. You need sound financial planning, including hiring an experienced tax accountant and financial planner. Also, it is a good idea to make solid investments such as bonds, money market and other low risk investments.
The article then begins to go into the idea of not quitting your day job and staying in your "comfort zone." Keeping your day job will help you keep a safety net. I don't think a rational individual will decide to keep their job(s).
Due to the income effect, a person is more likely to work less, if at all, depending on the level of the effect. In the case of the Mega Millions jackpot winner, $355 Million dollars will have a huge impact on a person that has a high income effect. The non-labor income is so high that a person will likely want to have all leisure and no employment.
So, what would you do? Would $355 million dollars cause you to quit your job or do you think you'd keep it just to have a safety net? Keep the income effect in mind with your decision.
9 comments:
I would still work. Most people would miss the social aspect of work. Traveling the world or picking up a few new hobbies is nice for awhile but eventually it will get old. I would be one of irrational individuals to keep my job. If anything and individual would start up their own business so they are still working in some sense. Many people like to feel like they are accomplishing something in life.
In my opinion, someone would have to be completely crazy to just quit their job because they win $335 million dollars. First of all, after taxes you would probably only get half of that. Don't get me wrong, that is a lot of money, but I think that if the person is crazy enough to just up and quit a steady job because they won a bunch of money, they are also going to spend it like crazy. That money will start to dwindle in your "safe, untouchable" bank account before you know it. I agree with the income effect. A large amount of money would make someone want to just enjoy the easy life with no job, but I think also once they have the chance to look at it realisticly, they will see that once they pay off all their debt, get a new car, the dream house they always wanted, and send their kids off to college, they really won't have a lot left. They need to at least keep their job and work it on a part time level, I guess, that is, if they enjoy it. All those years of working is not worth the loss of the job permenantly and then the possibilty that you run out of money before you die, in my opinion anyway. An economist, of course, might think differently and just look at all those years of working and possibly being promoted as a sunk cost that doesn't influence the decision.
I would decide to continue my work too. And in my opinion, I think every rational individual will do the same thing. Basically, it is a problem about opportunity cost. Assume that I won the lottery and got $355 million dollars. Now, I face two choices: to work or to enjoy my life. At the very beginning, a luxurious life surely attracts me more. The value of having a leisure time is much higher than the value of working with a same amount of time in terms of dollars. It seems to pick the latter choice is God's truth. However, do I ignore something? Yes, there is always a catch-up effect (subsequent growth) of initial conditions. The marginal value of leisure time will keep going down, and it will be less than the value of working finally. At that time, going to work will become a better idea. For instance, if I can have fun all the time without working anymore, I will absolutely feel bored some day and try to find some business to do as a result. All in all, it is a “how much” choice, not an “either-or” choice. Therefore, I think the idea to keep the job but to do less can benefit people who suddenly get millions lottery more.
Three hundred and fifty-five million dollars is a lot of money. According to the income effect, most people would decrease their hours of work. I don't believe most people would quit all together, just cut their hours enough that they have time to do everything else they want to do. Once a person has so many hours of leisure, an additional hour would not be worth as much so they would end up working a few hours.
If this situation were to happen to myself I would still work, maybe not a full time job but at least part time. I don't believe money brings you happiness, and your job should be something that you love to do, however many people today don't love their jobs, which could result in them quitting all together.
Any rational person would quit thier job. If we look at the budget contraint of a person we would see a significant shift from zero hours of work at zero dollars to $355 million dollars at zero hours of work. I believe everyone winning that kind of money would stop working because they would be on a higher indifference curve. The only way one would continue working was if they made a significant amount of money each week. I do not even think 200,000 a year would tweek a rational persons indifference curve to keep a person working. if this were a small amount of winnings it would become a different story.
Personally, I would keep my job. This is because I know that if I made more money, I would spend more money. Granted it would be hard to spend 355 million dollars but I know that I would choose to buy several more items that more expensive just because I have the money verus buying an item that I needed. This however is not the only reason that I woul continue to work. I am a person who loves to always be busy and having something to do. I believe that I would personally get bored of staying home and doing what I want every single day for the rest of my life. Sure you can travel and do other activities also, but there is only so many times that one can travel to Paris before it loses its excitment as well. I would also like to save the majority of this money so that my future generations would be able to also use it.
One of the reasons I am attending college is so I will be able to find a job that I enjoy. If I won 355 million dollars I would probably spend some of it on some nice things that I have always wanted. Perhaps a sports car or even taking a vacation to tour Europe. I don't think I would quit my job, or should I say my career, because of it. One thing is I think I would grow bored. I would like setting up a financial package so that I wouldn't have to worry about money, but I would like to think that it would just give me more resources to put towards doing what I like, which ideally should be my career.
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