The History of Lottery and the Economics of How it Works


In the United States, lottery players spend billions of dollars each year on tickets. Some play for the chance of winning a big jackpot, while others believe that the money will improve their lives in some way. Despite the fact that the odds of winning are very low, lotteries continue to grow in popularity. Some people have criticized lotteries as addictive forms of gambling, while others have pointed out that the money raised is used for good causes in the public sector. This article discusses the history of lottery and the economics of how it works.

What is a lottery?

A lottery is a type of game in which numbers are drawn at random to determine winners. The prizes are usually money or other valuable goods. Lotteries have long been a popular form of entertainment, and the first ones were recorded in the ancient world. They have also been used for many other purposes, including determining ownership or other rights. For example, the Old Testament instructed Moses to divide land among Israel’s people by drawing lots. Roman emperors gave away property and slaves by lottery, as well. Lotteries are also used to distribute awards in the military, education, and other fields.

The word “lottery” derives from the Dutch word for “fall of the dice,” a reference to the unpredictable nature of the results. The first European lotteries were organized as games of chance at dinner parties, with each guest receiving a ticket to be drawn during the festivities. These prizes were often fancy items such as dinnerware.

Modern lotteries involve a computerized process to draw winning numbers. Prize amounts can be small, such as a free movie ticket or a dinner for two. Alternatively, they may be much larger, as in the case of the Powerball lottery, which offers multimillion-dollar jackpots. The most common type of lottery is a state-run one, where the proceeds from ticket sales are allocated to specific projects. In fiscal 2006, the states received $17.1 billion from the sale of tickets. The states then distribute the proceeds in various ways, as shown in Table 7.2.

Some states use lottery profits to fund state and local programs, while others allocate them to general funds. In the latter case, a portion is returned to participants in the form of lower taxes. In addition, a small percentage of the proceeds is given to charity. The state of New York, for instance, allocates about 30 percent of its lottery proceeds to education. Other states, such as California and New Jersey, have similar allocations. Some states also use a percentage of their lottery profits to finance the cost of running the lottery. This approach is sometimes called a “hidden tax.” In contrast, in a private lottery, all the profits go to the winnings. This arrangement has been controversial, because it raises concerns about corruption and other problems associated with hidden taxes. It has led to several lawsuits.