The Dark Underbelly of the Lottery

Last year, lottery ticket sales in New York, California, Texas, and other states topped $100 billion, making it one of the most lucrative industries in the country. Yet this success is masking a dark underbelly: Lotteries create a sense of hopelessness, wherein people feel that the lottery is their only chance of improving their lives. This feeling is reinforced by the fact that, statistically, there’s a higher chance of getting struck by lightning than winning a lottery jackpot. In addition, there are several cases of lottery winners who end up worse off than they were before the jackpot hit.

The casting of lots for decisions and fates has a long history (see, for example, the Bible). Lotteries are popular means to raise money because they are simple to organize, easy to understand, and attractive to the general public. They also generate “voluntary” revenue, meaning that players voluntarily spend their money for the benefit of others. Lotteries are also a useful way to collect taxes when the government wants to spend more than it can legally raise through regular taxation.

Although state and national lotteries have grown tremendously over the years, they are still relatively young as a political institution. In the early days of the United States, they were a popular method to finance municipal repairs and other public works projects. Later, they were used to help fund Harvard, Yale, Dartmouth, and other colleges. They even played a significant role in the financing of the American Revolution and the formation of the Virginia Company.

In the beginning, state lotteries were similar to traditional raffles, with the public purchasing tickets for a drawing at some future date, often weeks or months out. Innovations in the 1970s, however, began to transform the industry. For instance, the introduction of instant games—often referred to as scratch-off tickets—spurred significant growth in revenues. These games were easy to play and provided a much faster return on investment for promoters and governments.

Lotteries also shifted from drawing multiple prizes to offering a single prize of a predetermined value. The amount of the prize is usually deducted from the total pool of funds available for prizes, including profits for the promoter and costs of promotion. In some lotteries, the prize pool is not fixed and may be adjusted based on the number of applicants and other factors.

Regardless of the structure of the lottery, most state lotteries follow similar patterns when it comes to their operations. They start with a small number of fairly simple games; their revenues grow rapidly to the point of generating “boredom,” prompting them to introduce new games; and, in some cases, their revenues decline. The graph below, for example, shows the results of a number of recent lotteries, with each row representing an application and each column showing the position that the application received in the lottery. The colors in the graph indicate how many times each application has been awarded a specific position. Ideally, a truly random lottery would have each application receive the same position a similar number of times.