Lottery is a popular way for people to try and win money. Some of the biggest jackpots in history have been won by people from all walks of life. Lotteries are a source of revenue for state governments. But they are also a source of controversy. Many critics of lottery say it encourages compulsive gambling or has a regressive impact on poor people. Others argue that people should not have to pay for a chance at winning. Despite the debate, there is no doubt that lotteries are an important part of state government.
The first public lotteries were held in the fifteenth century, when towns used them to raise funds for town fortifications and to help the poor. The practice soon spread to England, where Queen Elizabeth I chartered the nation’s first national lottery in 1567 to help finance her war efforts. In the seventeenth and eighteenth centuries, states used lotteries to raise money for their schools and other institutions. Those who opposed state-sponsored lotteries argued that the profits from them were unfairly diverted from education and social welfare. Nevertheless, lotteries continued to expand nationwide. In the late twentieth century, as America grew more tax averse and a movement to cut taxes gained momentum, states turned to lotteries to fill their budget gaps.
In 1964, New Hampshire approved the first modern-day state lottery, and thirteen other states followed suit. As Cohen writes, lotteries offered states “a fiscal miracle: the chance to make revenue appear out of thin air.” State politicians could run lotteries without raising sales or income taxes, which would rouse opposition from voters, and the public was willing to buy into the fantasy that they might one day win a big prize.
Whether they support the idea of playing the lottery or not, most people are aware that the odds of winning are very long. Yet they continue to buy tickets, and some people become extremely adept at the games. For example, a Michigan couple made $27 million in nine years by buying large numbers of tickets in bulk and using a system to increase their chances of winning. (See HuffPost’s Highline story for details.)
People’s rational decisions about playing the lottery depend on their overall utility: how much they value the monetary gains and non-monetary benefits of winning. If the expected utility is high enough, the disutility of a monetary loss will be outweighed by the total utility.
But if the value of winning is very low, the negative utility will be even greater than the monetary cost. And that’s where the problems start to accumulate. As the economy weakens, and people’s incomes and retirement savings decline, lottery ticket sales tend to increase. They increase further when lotteries are heavily advertised, and the ads tend to be most visible in neighborhoods that are disproportionately poor, Black, or Latino. The bottom line is that, unless people are willing to stop playing the lottery, its popularity will continue to grow.