The Economics of Lottery

Lottery is a form of gambling in which players pay for a ticket, either by selecting their own numbers or having machines randomly spit out numbers and prizes are awarded to those whose numbers match. The practice of determining property distribution by lot is ancient and well documented in the Old Testament (Numbers 26:55-56) and the Roman Empire (where the emperors gave away property and slaves during Saturnalian feasts). Today, there are state-sponsored lotteries in 37 states, with prizes ranging from a few dollars to an entire town or city.

The lottery is an enormously popular activity that generates billions of dollars in revenues each year. While the odds of winning are very low, many people play because they believe that the prize money will somehow improve their lives. In this article, we examine the economics of lottery and find that the evidence doesn’t support the claim that it promotes greater wealth.

In addition, critics of the lottery argue that, although the legislature earmarks some percentage of the proceeds to specific programs, the actual effect is to reduce by the same amount the appropriations the legislature would otherwise have made to these programs from the general fund, and thus has no overall effect on those programs. Critics also charge that the lottery’s advertising is deceptive, commonly presenting misleading information about the odds of winning the jackpot and inflating its value.

Another factor driving lottery sales is super-sized jackpots, which generate a windfall of free publicity when they appear on newscasts and website news feeds. But these jackpots are not sustainable, and a large percentage of the money is lost to players and vendors.