The lottery is a type of gambling where participants pay for a ticket and then have the chance to win a prize. The prizes can be money or goods. There are many different types of lotteries, from ones where people draw numbers for housing units in a subsidized apartment block to ones that dish out kindergarten placements at a reputable public school. Lottery games have gained in popularity, and are now played by a large segment of the population. This increase in popularity has led to several problems. Some of these issues stem from the fact that state governments, which run lotteries, often develop broad specific constituencies. These include convenience store operators (the usual vendors for lotteries); lottery suppliers (heavy contributions by these suppliers to state political campaigns are frequently reported); teachers (in those states that earmark the proceeds from the lottery for education), and state legislators who quickly become accustomed to the additional revenue from the game.
While the casting of lots to determine ownership or other rights has a long history, state-sponsored lotteries are relatively new. The first of these was established in 1612 in order to fund the Jamestown, Virginia settlement. Public and private lotteries were common in Europe by the fifteenth century, and they were introduced to America in the late seventeenth century as a means of raising money for towns, wars, colleges, and public-works projects. A mercantile journal from Boston in 1832 noted that there were about 420 lotteries then being held in eight states.
By the end of the 1960s, sixteen states and the District of Columbia had started lotteries. The growth of the lotteries was rapid, and they became a major source of income for these states. Unlike commercial lotteries, which are regulated by the federal government and compete with each other, state-sponsored lotteries are legalized monopolies that are forbidden to allow competitors to operate in their territories.
In addition to the income that they generate, lotteries are also a source of “painless” revenue for state government. Because people purchase lottery tickets voluntarily, the state is able to raise funds for state programs without having to resort to direct taxes on citizens. The fact that people purchase lottery tickets reflects the fact that they are willing to risk their money for the potential to improve their lives.
The purchasing of lottery tickets cannot be accounted for by decision models that incorporate expected value maximization. Instead, more general utility functions defined on things other than the outcome of the lottery can account for this behavior. These more general models can even capture risk-seeking behavior, as well as the fact that lottery purchases are a form of recreation that allows individuals to indulge in fantasies of wealth and power.