Is "average luck" a good concept in Premium Bonds

hhshipley

Everyone seems to use the concept of "average luck" when quoting premium savings chances of winning. But try this little experiment-

Log on to the prizes calculator, and use £1700 for a year - result is "£0 with average luck". Go to the graphical display and hover over the £25 vertical bar and read off 49.3 percent.

Repeat for £1800 for a year and the results are "£25 with average luck" and 51.3%.

With only a swing of 2 percentage points we go from no chance to a win. This surely is not how the real world chances of winning change - no difference as we put in £1700 but at that point an extra £100 flips the expectation to £25. Is "average luck" a useful concept?

chockydavid1983

I wouldn't say it's useful.
I would think of premium bonds generally returning less than the equivalent bank account interest with a pretty small chance of winning big.

EdGasket

As there are some extremely large prizes, your expected return will not be 'average'. You can look at the notional interest that is used to make the prize fund to evaluate an investment in premium bonds compared to something else but even so, you might never get a penny more than your original investment back. (the prize fund interest rate is 1.15% from 1st May so better than a lot of accounts)

[Deleted User]

Years ago, I had the then max amount of 30k. I did reasonably well - regular small amounts making more than the average Building Society account. This year, being in a position to do so again invested 50k, and the first two draws that my bonds have been eligible for have resulted in £25 per month. Not so good so far this time, but that's the nature of PB's ....

eskbanker

hhshipley wrote: »

With only a swing of 2 percentage points we go from no chance to a win. This surely is not how the real world chances of winning change - no difference as we put in £1700 but at that point an extra £100 flips the expectation to £25. Is "average luck" a useful concept?

It is accurate to say that the extra £100 tips the balance from less than 50% to more, therefore (in binary terms) from winning being unlikely to likely.

Having said that, it's also accurate to say that on average a human being will have one testicle and one breast, and you might not want to meet that in a nightclub, so simple mathematical averages aren't necessarily particularly helpful....

ceredigion

eskbanker wrote: »

It is accurate to say that the extra £100 tips the balance from less than 50% to more, therefore (in binary terms) from winning being unlikely to likely.

Having said that, it's also accurate to say that on average a human being will have one testicle and one breast, and you might not want to meet that in a nightclub, so simple mathematical averages aren't necessarily particularly helpful....

I'll remember that, the next time I meet Mr average

kidmugsy

chockydavid1983 wrote: »

I would think of premium bonds generally returning less than the equivalent bank account interest with a pretty small chance of winning big.

Quite wrong. From May they pay an average 1.15% p.a. Even if you overestimate the proportion of their payments going to the big prizes as accounting for the 0.15%, the remaining small prizes constitute the 1% which is far higher than most bank accounts pay. And it's tax-free for everyone. Anyone who want to park a few tens of thousands for a few years should seriously consider PBs.

eskbanker

ceredigion wrote: »

I'll remember that, the next time I meet Mr average

Or indeed Mrs/Miss/Ms/Ind/M/Mx/Misc/Mre/Msr/Myr/Pr/Sai/Ser Average....

Eco_Miser

hhshipley wrote: »

With only a swing of 2 percentage points we go from no chance to a win. This surely is not how the real world chances of winning change - no difference as we put in £1700 but at that point an extra £100 flips the expectation to £25. Is "average luck" a useful concept?

The problem is not with 'average luck' but with the quantization of messages in the calculator. In other words, any probability less than 50% produces the "£0 with average luck" message, and any probability over 50% the
"£25 with average luck" message - an almost infinitesimal swing. It really needs a "£25 with average luck about half the time" message.

teddysmum

I wish they would cut the million wins and give more people a chance of smaller prizes. Few actually expect to have a big win, so more would be satisfied by extra chances of winning something.


I would imagine very few buy just because they may win a million.More likely as they don't lose their stake and the payouts from savings accounts are so poor, so little to lose.

kidmugsy

teddysmum wrote: »

I wish they would cut the million wins and give more people a chance of smaller prizes. Few actually expect to have a big win, so more would be satisfied by extra chances of winning something.

Spoilsport.