What is a Lottery?

A lottery is a game of chance in which winners are chosen by a random drawing. Many governments run lotteries, either as state or national games, with the proceeds often used for public good. Some of the most popular lotteries are financial, with participants betting a small amount of money in order to have a chance of winning a huge sum of money. This type of lottery has been criticized as an addictive form of gambling, but the fact remains that the advertised prize amounts are usually far lower than the amount of money paid in by those buying tickets.

Despite the negatives, it’s possible for an individual to make a rational decision to purchase a lottery ticket if they value the entertainment or other non-monetary gains that are expected to come from playing the game. In this case, the disutility of monetary loss is outweighed by the combined utility of the monetary and non-monetary benefits.

The use of lotteries for material gain has a long history in human culture. The Old Testament contains several examples of people having their fates determined by lot, and the Romans held many different types of lotteries to give away property, slaves, and other goods. During Saturnalian feasts, the host would distribute pieces of wood with symbols on them to guests; toward the end of the meal, the drawing for prizes would be conducted. This was a common dinner entertainment in ancient Rome, and the resulting prizes could be carried home as souvenirs of the evening.

In the early American colonies, private lotteries were very popular. Benjamin Franklin organized a lottery to raise funds to buy cannons for Philadelphia, and George Washington managed a lottery that offered land and slaves as prizes. The Continental Congress voted to establish a public lottery in 1776, but the scheme was unsuccessful.

State-sponsored lotteries are now commonplace in the United States, and they are used to fund a variety of public projects and programs. The principal argument for a state to adopt a lottery is that it provides “painless revenue,” with citizens voluntarily spending their money (in exchange for the possibility of winning a prize) in place of higher taxes or cuts in public programs. This argument is especially persuasive in times of economic stress, when voters are fearful of tax increases or government cutbacks.

Statistical analysis of lottery data has shown that the number of wins and losses is not related to the state’s fiscal health. The success of a lottery is more a function of the social dynamics at play in a given state than its objective fiscal condition. Nevertheless, a lottery is only likely to win broad public approval if it is perceived as helping a specific public good, such as education. Otherwise, its popularity is likely to be short-lived. This article was written by David Cook, a researcher at the Federal Reserve Bank of Boston. It originally appeared in the Fall 2012 issue of Economy & Business.