The lottery is an enormously popular pastime, generating billions of dollars in revenue each year. But the odds of winning are incredibly low. So why do people play? And does it actually provide a benefit to society?
Cohen’s narrative begins in the nineteen-sixties, when growing awareness of the enormous profits to be had from lotteries coincided with a crisis in state government funding. A swollen population and rising inflation combined to make balancing the budget extremely difficult, especially for states that provided a generous social safety net. Raising taxes or cutting services were both extremely unpopular with voters, so the states turned to lotteries as a way to bring in cash.
In most cases, a lottery operates like this: the state establishes a monopoly for itself, often in partnership with a private company; begins operations with a modest number of relatively simple games; and then progressively expands its offerings. The total value of prizes offered is usually the amount left after expenses—profits for the promoter and costs associated with promoting the lottery, as well as taxes or other revenues—are deducted from the pool.
Lotteries enjoy widespread public approval, which is largely a function of the degree to which they are perceived to be supporting a societal good. But, as Clotfelter and Cook demonstrate, this is not a relationship that is robustly linked to the actual fiscal circumstances of a state; the popularity of lotteries rises even when state governments are in sound financial shape. One reason for this is that rich people, on average, purchase fewer tickets than poorer people (though the wealthy do tend to spend more on each ticket); their purchases also represent a smaller percentage of their annual incomes.