The Dark Underbelly of the Lottery

The lottery is a popular form of gambling in which winners are selected at random. It’s also a process used in sports team drafts and the allocation of scarce medical treatment. People spend billions of dollars each year on lottery tickets. But there’s a dark underbelly to this seemingly harmless activity: the way it dangles the possibility of instant riches in our society of inequality and limited social mobility.

Lottery: How It Works

The word lottery comes from the Dutch term lot, meaning fate or chance. Its earliest usage is from the 16th century. During the American Revolution, the Continental Congress relied on lotteries to fund military projects. Alexander Hamilton wrote that “everybody will be willing to hazard a trifling sum for the chance of considerable gain.”

When someone wins the lottery, they can choose to receive their winnings in one lump sum or an annuity payment. Winnings are often taxed, but the amount of taxes owed depends on how they’re invested and whether they’re received as a lump sum or annuity.

State governments make a lot of money from lotteries, and they allocate a portion of those profits to education. But it’s not clear that consumers understand how much their lottery play is really costing them, because unlike a regular tax, they don’t see the implicit sales tax on those ticket prices.

Posted in: Gambling