The Lottery Industry and Public Policy

A lottery is a scheme for allocating prizes by chance. Some are played for cash, while others award services or goods such as housing units in a subsidized development or kindergarten placements at a public school. Financial lotteries are widely popular, and some raise money for worthy causes. But critics argue that they encourage compulsive gambling, and skew wealth distribution by disproportionately attracting low-income players. The revival of state lotteries in the mid-twentieth century and subsequent growth has drawn attention to this issue, which may be an important factor in the continuing evolution of the industry.

Making decisions and determining fates by the casting of lots has a long history, including several instances in the Bible. But the practice of using lotteries for material gain is much more recent. The first public lotteries, which offered tickets for sale with prizes in the form of money, were held in the Low Countries in the 15th century for the purpose of raising funds to repair town fortifications and help the poor.

The term lottery probably comes from the Middle Dutch word loterie, a diminutive of lotte “fate” or “luck”. The Old English word lutyr was derived from the same root, and is also closely related to the French word loterie, which is a contraction of the Latin phrase for “fate or luck” (Loterie, 2005).

Modern state-run lotteries have a variety of objectives, but the central one is to generate revenue. In the immediate post-World War II period, when many states were introducing their first lotteries, politicians promoted them as a way to expand state social safety nets without imposing especially onerous taxes on working and middle class families.

Since then, however, state lotteries have developed a reputation for generating enormous profits. In many cases, the money raised is used to supplement existing tax revenues rather than to fund new programs. This arrangement has led to a debate over whether or not these lottery proceeds represent an appropriate function for government, and has generated concerns about the effect of lotteries on problem gamblers, lower-income people, and other aspects of public policy.

The basic argument in favor of state lotteries is that the lottery gives ordinary citizens a small sliver of hope that they might win a prize, and that this entices them to spend a modest sum of money. The evidence, however, is mixed on this point. A number of studies suggest that the probability of winning a prize in the lottery is influenced more by the number of tickets purchased and the selection of numbers, than by any other factor. In fact, some of the highest paying prizes in the lottery are won by people who bought only one ticket. For example, the top prize in the Powerball lottery was won by a man who had the only ticket purchased for that drawing. The lesson here is that the odds of winning a prize in a lottery are not nearly as high as some people might believe.