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What is a Lottery?

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A lottery is a game of chance run by a state government in which the public buys chances to win a prize. Prizes may be cash or goods and services. The word is probably from the Dutch lot “fate” or “allotted,” but it may also be related to Middle French loterie, perhaps a calque on Middle Dutch Lot “lot of fate.” The casting of lots as a way of distributing property has a long history, and there are even ancient scriptures that refer to the practice. But the modern use of lotteries for monetary gain is relatively recent. The first recorded lottery to distribute money was in 1466 in Bruges, Belgium.

Lotteries are popular with many people, despite the low chances of winning. In the United States alone, they contribute billions to state coffers each year. The state governments sponsoring them argue that the proceeds are used for good causes, such as education and roads. But the fact is that state lotteries are little more than gambling operations. Their main message is that, regardless of whether you lose or win, you should feel a sense of civic duty to support the state by purchasing a ticket.

In the first century after America’s founding, lottery games became popular as a quick way to raise money for projects such as road construction and public buildings. They helped to fund the first colonial settlements and fueled the growth of the nation’s banking system, as well as its early industries and universities. Even famous American leaders like Thomas Jefferson and Benjamin Franklin saw the usefulness of lotteries, donating prizes to retire their debts or buy cannons for Philadelphia.

But in the modern era, when lotteries are run by state agencies rather than private companies, the emphasis is on maximizing revenues. The resulting marketing strategies are designed to appeal to specific groups of potential customers, including convenience store owners (who sell tickets), lottery suppliers (who often make large contributions to political campaigns); teachers (in states where the revenues are earmarked for education); and state legislators and their constituencies.

While a state’s initial motivation for adopting a lottery may be different, the arguments for and against it are remarkably similar across states. Once in place, lotteries are almost impossible to abolish. The public’s love of gambling is one reason, but other factors are at play as well.

The purchase of a lottery ticket cannot be rationally accounted for by decision models that take into account expected value maximization. The value of a monetary prize is far less than the price paid for the ticket, and the disutility of losing outweighs the utility of winning. The result is that the overall value of a lottery is far lower than its popularity indicates. That should be a serious consideration for anyone analyzing a new state lottery. The current dynamic of state lotteries is a classic example of policy decisions being made piecemeal and incrementally, with a lack of any general oversight.

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