In America, the lottery is a national pastime, with more than 40% of adults playing at least once a year. While many people play for the chance to win a large jackpot, others are drawn by the inexplicable human impulse to gamble. Yet the lottery is hardly gambling in the traditional sense of the word; it’s more like a raffle, where people buy tickets for a chance to win a prize, typically cash. And in fact, the odds of winning a lottery prize are actually quite low: a study by MIT economists showed that most players lose more money than they win.
Lotteries are popular in states that struggle with fiscal crises, and their success is often linked to the extent to which they can be seen as a “painless revenue source”—that is, a way for state governments to increase spending without angering anti-tax voters. But studies have also found that the popularity of the lottery is not necessarily tied to a state’s objective financial situation, and it has even become popular in some states with relatively robust fiscal health.
Once states establish lotteries, they are almost always able to retain broad public support, and their revenues are a major contributor to state government’s budgets. In addition to the general public, state lotteries develop extensive specific constituencies: convenience store operators (whose businesses are frequent customers of the lottery); lottery suppliers and retailers (who contribute heavily to political campaigns); teachers in states where lottery funds are earmarked for education; and state legislators.
Despite these advantages, the lottery’s overall performance is mixed. Revenues grow quickly after the lottery’s introduction, but then they plateau and even decline. This pattern is familiar to economists, who describe it as the “boredom effect.” To combat this phenomenon, lotteries introduce new games in an attempt to maintain or increase revenues.
The most important factor in lottery revenue growth is promotion. In order to attract the attention of potential players, state lotteries use television and radio commercials, Internet sites, and billboards. They also team up with sports franchises and other companies to provide popular products as prizes, such as Harley-Davidson motorcycles or celebrity-endorsed scratch-off games. These merchandising deals not only help lottery marketers promote the games, but they also serve to reduce the cost of promotions.
Moreover, lotteries are particularly successful at marketing their prizes to poor neighborhoods. Research by Cohen and colleagues finds that lottery sales increase when unemployment and poverty rates rise, and the sales of lotteries are disproportionately high in areas that are predominantly black or Latino. This may partly explain why critics of the lottery sometimes call it a “tax on stupid people”—either because players don’t understand how unlikely they are to win or because they enjoy the game anyway.
