What is the Lottery?


The lottery is an activity where prizes are allocated by a process that relies entirely on chance. This is set out more formally in section 14 of the Gambling Act 2005 (opens in a new tab). Those participating in a lottery must pay an entrance fee, and a proportion of this goes to costs of organizing the lottery and profits for its sponsors. The remainder goes to prize winners. This balance must be struck between a few large prizes and many smaller ones. Many potential bettors seem attracted to a high jackpot, as evidenced by the rapid growth of ticket sales for rollover drawings.

People dream of what they would do with a big win in the lottery. Some think of instant spending sprees, cars, luxury holidays and so on, while others plan to pay off mortgages or student loans and invest the rest in a variety of savings and investment accounts. The ugly underbelly of this is that most people know that they will not actually win the lottery, but the hope that they might still do so gives the activity some entertainment value and an expected utility for those who purchase tickets.

State lotteries typically begin life as a traditional raffle with a drawing taking place at some future date, often weeks or even months in the future. Over time, innovations have transformed these into a wide range of games that are sold through commercial outlets, including scratch-off tickets. Revenues typically expand dramatically initially, but then tend to level off or decline, leading to the introduction of new games to maintain or increase revenues. This is a classic case of public policy made piecemeal and incrementally, with authority divided between the legislative and executive branches. The result is that state governments have become dependent on lottery revenues and are under pressure to increase those revenues in the face of anti-tax sentiment.