Public Policy and the Lottery

Public Policy and the Lottery


The lottery is a form of gambling whereby people choose a set of numbers in the hope that they will be drawn. The prize money is typically very large. People may also choose to play for charity. It is one of the few gambling activities that attracts broad popular support, and it is the most popular form of gambling in the United States. Many of the state lotteries are run by the private sector, but there are some that are supervised by government officials. In either case, they must comply with a variety of regulatory requirements.

The first recorded lotteries offered tickets for prizes in the form of money, and were held in the Low Countries in the 15th century to raise funds for town fortifications and poor relief. The word “lottery” is derived from the Dutch noun lot, meaning fate, and the casting of lots to determine fortune has a long history in human culture.

Public policy makers who are responsible for state lotteries face a difficult balancing act. They must meet the needs of people who want to gamble and still provide a good return on investment for taxpayers. In addition, they must take into account the social costs of lotteries. This is a classic example of how difficult it is for government officials to manage an activity that they profit from.

Whether a state adopts a lottery or not, its success depends on how well it is managed by the executive and legislative branches. In the case of state lotteries, policy decisions are made piecemeal and incrementally, with little or no general overview. As a result, public welfare considerations are often subordinated to the desire to generate profits for the state.

A key factor in winning and maintaining public approval for a lottery is the claim that the proceeds are used to benefit a specific public good, such as education. This argument is effective in times of economic stress, when the prospect of a tax increase or cut in public spending looms large. However, studies have shown that the objective fiscal health of a state has little bearing on the decision to adopt a lottery.

Lottery commissions promote a number of messages to the public, primarily that playing is fun and that scratch-off tickets are easy to use. Lottery advertisements also emphasize that the monetary benefits of winning are great. This message is particularly effective in the United States, where the top incomes have become much more concentrated than in other developed countries.

The purchase of lottery tickets cannot be explained by decision models that incorporate expected value maximization. The reason is that lottery ticket prices are not sufficiently high to overcome the disutility of a monetary loss. Other models based on utility functions defined on things other than the lottery outcomes can account for the purchase of lottery tickets, but only if the purchaser is sufficiently risk-seeking. If not, the purchase of a lottery ticket is an irrational decision.