The lottery is America’s most popular form of gambling. State governments promote it as a way to raise revenue, and people spend $100 billion on tickets each year. But just how meaningful that money is to broader state budgets, and whether it’s worth the trade-off to people who lose money, are open to debate.
The word lottery comes from the Latin ‘lot’, meaning fate or fortune; it was once common in Europe for wealthy noblemen to distribute prizes at dinner parties by lottery (the prize was often fancy dinnerware). Later, the lottery became a way to raise funds for public usages such as repairing municipal buildings and public schools.
But today, most people who play the lottery don’t buy it for a charitable cause or even to become rich. They do it for a feeling of excitement and a fantasy that they’ll win the jackpot someday. And that’s why the lottery is so dangerous — it gives people hope, and makes them feel like they’re not really irrational.
Lottery purchases cannot be explained by decision models based on expected value maximization, because the tickets cost more than they pay out in prizes. But more general utility functions defined on things other than the lottery outcomes can account for some ticket purchases, as can an ego-boosting desire to be a risk taker.
Lottery operators keep about 50% of the proceeds for running costs, including salary for the staff. They also need to pay for the design, production, distribution, and advertising of their product. So, selling billions of dollars’ worth of tickets, and only paying out millions in prizes each week, is not an easy task to make a profit on.