A lottery is a game of chance in which participants pay a small amount to be given the opportunity to win a larger sum of money. Participants choose a group of numbers or, in modern games, allow machines to select theirs for them, and are awarded prizes depending on how many of their numbers match those chosen by the random machine. Despite the fact that lottery players know, or at least suspect, that they are unlikely to win, people continue to purchase tickets in large numbers. The reason, as Cohen argues, is that people are not merely risk-averse but rather are “preferentially swayed by the prospect of large monetary gains.” For the individual, the expected utility of winning can far outweigh the disutility of the monetary loss.
Governments around the world use lotteries to raise funds for everything from public works projects to subsidized housing units. Some countries are more fond of the practice than others; the largest state-run lottery, operated in Australia, sells a million tickets a week and has been credited with helping to fund the Sydney Opera House.
While making decisions and determining fates by casting lots has a long history in human history (the Bible contains several instances), the first recorded public lottery to distribute prize money was organized by Augustus Caesar for municipal repairs in Rome. Later, it was common for cities and towns in Europe to hold lotteries to fund a variety of purposes, from public works to the building of churches.
The modern lottery, however, is a much different animal than its early incarnations. Its development coincided with, and was partly inspired by, the nation’s late-twentieth century tax revolt. State governments began to run into financial trouble as the baby boomers grew up and demanded services that were beyond their ability to pay for, while inflation and the cost of the Vietnam War made traditional revenue streams more onerous.
Lotteries were seen as a way to raise revenue without raising taxes, and they became increasingly popular in the Northeast and other states with more generous social safety nets. They were also, in a way, the perfect solution to America’s peculiar problem with gambling. Unlike most state games, which tended to feature few, very large prizes and many, smaller ones, the modern lotto offers only a handful of large prizes (and many, much, much smaller ones).
But even this arrangement has some problems. A winner’s prize isn’t always a windfall: in some cases, up to half of the winnings must be paid as taxes. And the vast majority of winners, according to a study, go bankrupt within a few years. In addition, national lotteries encourage gambling addiction and disproportionately affect poor communities, a risk that is largely ignored by politicians who are eager to appeal to voters’ proscription against paying taxes.