What is a Lottery?
A lottery is an arrangement by which one or more prizes are allocated by a process that relies wholly on chance. The prizes may be money, goods or services. Almost all states have state lotteries that raise substantial sums of money and donate a percentage of their profits to charitable causes. Lotteries also make an attractive source of revenue for governments because they are low cost to operate and have a high degree of public acceptance.
The word “lottery” is derived from the Middle Dutch verb loter, which means to draw lots. It was used for a variety of purposes in medieval Europe, including to determine inheritances and legal disputes. The lottery became a popular source of painless public revenue in the United States after its colonization, raising funds for such projects as paving streets and building wharves. In the 19th century, it was used to fund projects such as building the British Museum and repairing bridges.
In the modern era, state lotteries have broad and deep public support: in states with lotteries, 60% of adults report playing at least once a year. However, lotteries also develop extensive specific constituencies: convenience store operators (lottery advertising frequently targets them); lottery suppliers (heavy contributions to state political campaigns are routinely reported); teachers (in those states where lotteries generate revenues earmarked for education); and so on.
Most state lotteries have evolved in similar ways: they start with a legislative monopoly; establish a public agency or corporation to run the lottery (as opposed to licensing a private firm in return for a share of the profits); begin operations with a modest number of relatively simple games; and, due to constant pressure for additional revenues, gradually expand their size and complexity, especially by adding new games. This expansion has generated problems ranging from the trivial to the profound.
Probably the most serious problem stems from the fact that state lotteries are based on a fundamentally flawed logic. They rely on the expectation that future ticket purchases will result in an increase in the total expected utility of the player, even though it is possible that the player could lose some or all of his tickets.
This logic explains why lottery sales are so successful and so popular, and why many people continue to play despite knowing that they are unlikely ever to win the jackpot. It is also why people keep buying lottery tickets despite the huge tax burdens that they impose on winners. In fact, most lottery winners go bankrupt in a couple of years because the vast majority of winnings must be paid in taxes, and because the value of a prize decreases significantly over time. Moreover, it is why many people buy more tickets when the odds of winning get worse rather than better. They do so with the hope that, somehow, they will finally hit it big. This is not a rational choice, but it is a very human one.