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Why Do People Buy Lottery Tickets?

People spend billions of dollars every year on lottery tickets. While the odds of winning are incredibly low, many people believe that they have a sliver of hope that they will hit it big. In reality, they will most likely go broke in a few years from having to pay taxes on their winnings. Instead of buying a ticket, consider using the money you would have spent to save for an emergency or pay off credit card debt.

State governments promote lotteries by stressing that they are a good source of “painless” revenue — that lottery players voluntarily fork out their own money and the government keeps a portion of the proceeds as prize money and profit, rather than taking it from ordinary citizens in the form of taxes. This argument is particularly effective in times of economic stress, when state government budgets are tight and people are worried about losing services like education.

But focusing on the benefits of state-sponsored gambling obscures the regressive nature of lottery revenues. Consumers do not view their lottery purchases as a direct tax, and they are not clear about how much the state is spending on other services as a result of those revenues.

The purchase of lottery tickets cannot be accounted for by decision models based on expected value maximization, because there is always a cost involved in the purchase of a ticket, and that cost is not reflected in the expected prize amount. But more general utility functions that are defined on things other than lottery outcomes can account for the purchase of tickets, and may explain why some people choose to play them.

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