The Economics of the Lottery

Lottery is a big business, a fixture in American culture and a source of billions of dollars per year. But while there’s no denying that some people find lottery fun, it’s also a dangerous game in which the odds are stacked against you. And while there are some practical tips for playing better, it’s important to understand the economics behind this form of gambling.

There is an inextricable human impulse to gamble. In the age of inequality and limited social mobility, it’s an especially tempting lure. It’s why lottery jackpots grow to such obscenely high amounts, making them the envy of the nation on news sites and newscasts. But what the average person doesn’t see is that those jackpots aren’t necessarily the result of a lottery’s “generosity.” They’re the result of the same inextricable forces that govern all forms of gambling.

Using public data, we can look at how much the state has received from each ticket sale and compare that to what it spends. This allows us to measure whether a lottery is good or bad for its state. We looked at all states, including those with no state lottery, and then sorted them by the percentage of total state revenue that they got from ticket sales.

The results are shocking: Despite the fact that most people lose money, a large number of state governments are taking in a staggering amount from this activity. Some are relying on this income to provide a wide array of services, from public health to education, without having to increase taxes on the middle and working classes. But it’s a fragile arrangement, and one that needs to be examined more closely.

A few decades ago, the lottery industry was still in its infancy. But as the economy changed, so did its popularity. The advent of the Internet allowed people to play from anywhere, and many developed a deep love for this game. The game was particularly popular in the Northeast, where state governments had larger social safety nets and could arguably afford to lose money in the name of helping their citizens.

The term “lottery” dates back to the 15th century, but it was during the Revolutionary War that it became widespread in America. The Continental Congress used a lottery to raise money for the army, and Alexander Hamilton believed that “everybody will be willing to hazard a trifling sum for a chance of considerable gain.” The same reasoning led Benjamin Franklin to organize a lottery to purchase cannons for Philadelphia’s defense and George Washington to advertise a lottery for land and slaves in the Virginia Gazette. Privately organized lotteries were also common in the United States, and they helped build schools such as Harvard, Dartmouth, Yale and William and Mary.