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Gambling

How the Lottery Works and Why People Play

Lottery is a gambling game where people buy tickets for a chance to win a large sum of money. It is often run by state governments and it is a major source of state revenues. The prize money in lottery games can be in the millions of dollars. Lottery players are often young and affluent, but the vast majority of the players are poor. In this article we will explore how lotteries work and why people play them. This article can be used by kids & teens as part of their financial literacy curriculum or by parents to teach them about this type of government-sponsored gambling.

In an era of budget crises, states began casting around for solutions that wouldn’t enrage an increasingly anti-tax electorate. Lotteries looked like a promising option: They would bring in lots of money and, unlike most other government services, they were essentially risk-free. Thomas Jefferson favored them (he once managed a Virginia lottery that included human beings as prizes) and Alexander Hamilton grasped their essence, that everyone “would prefer a small chance of winning a great deal to a large certainty of losing little.”

Advocates of state-run lotteries dismissed long-standing ethical objections by arguing that people were going to gamble anyway, so governments might as well pocket the profits. This argument was flawed in many ways, but it did allow advocates to claim that a vote for the lottery was not a vote against education or veterans or senior care.

The use of the casting of lots to make decisions and determine fates has a long history, attested by numerous references in the Bible. It was also popular in the Roman Empire, where it served as a party game during Saturnalia festivities. The first recorded public lotteries to offer tickets for sale with prizes in the form of money were held during the reign of Augustus Caesar for municipal repairs in Rome. The first known European lotteries to distribute cash prizes were held in the 15th century, though the earliest records indicating that these were for charitable purposes come from towns in what are now Belgium and the Netherlands.

Today’s lotteries are a lot more sophisticated, but the basic principles are the same. They rely on a similar mix of messages to get the public to buy in: They promise instant riches, they imply that playing is a fun and harmless activity and they make it easy for consumers to ignore the fact that they are paying a hidden tax.

Lottery is a regressive tax because the poorest people – those in the bottom quintile of the income distribution – don’t have enough disposable income to afford to play it. Most lottery playing is by people in the 21st through 60th percentile of the income distribution, which means that the average lottery ticket cost is a good chunk of their discretionary income. They are playing a game that promises them a big windfall but gives them no opportunity to achieve the American dream or become entrepreneurs, and they’re doing it despite the fact that their chances of winning are extremely low.