How Does the Lottery Work?

Many states promote the lottery as a way to raise revenue, and it’s certainly true that it’s a very popular form of gambling. But, how much it really helps the state budget is a matter of debate, and there are serious costs to the average citizen who buys tickets.

The earliest known lotteries offered prizes in the form of goods or services. In the Low Countries in the 15th century, towns held public lotteries to raise money for town fortifications and to help the poor. Some scholars believe these events are the earliest examples of a modern idea: the concept of a random prize distributed by drawing numbers.

A lottery requires a mechanism for recording the identities of bettors and the amounts they stake. A common method for doing this is to have the bettor sign his or her name on a ticket that is then deposited with the lottery organization for subsequent shuffling and selection in the draw. Alternatively, the bettors may purchase numbered receipts that are then used for the same purpose.

Lottery purchases cannot be accounted for by decision models that rely on expected value maximization. But, more general utility functions that incorporate risk-seeking behavior can explain why some people choose to play the lottery. If the entertainment value of playing is high enough, or if the non-monetary benefits outweigh the disutility of a monetary loss, then lottery purchasing can be a rational choice for an individual. The Bible warns us, however, that it is not good to seek wealth by chance: “Lazy hands make for poverty, but diligent hands bring riches” (Proverbs 23:5).