The lottery is an ugly underbelly of our societal anxieties about income inequality and limited social mobility. Lotteries play on people’s irrational gambling behavior, giving them the illusion that they can afford to buy their way out of poverty and into a middle-class life. It’s a lie, of course, but one that millions of people believe in every time they purchase a Powerball ticket or scratch-off game.
In the early 20th century, state governments saw lotteries as a great opportunity to bring in additional revenue without raising taxes. By the end of the decade, however, the lottery was generating only 2 percent of all state revenues, and that was after absorbing millions in administrative expenses and the cost of advertising. Even a modest habit of buying a ticket or two can result in thousands in foregone savings that could have gone toward retirement, college tuition, or even basic necessities.
Lottery players as a group aren’t shrewd investors, but they see buying a lottery ticket as a low-risk investment that will pay off with the potential for a large windfall. That’s not a bad argument to make—it’s just important for consumers to be aware that the jackpot total they hear about on their television screens doesn’t actually exist in a vault, waiting to be handed over to the next lucky winner. Rather, that jackpot figure represents the total amount that would be received if the current prize pool were invested in an annuity that paid out annual payments over 30 years—plus a substantial profit for the lottery promoter and taxes or other revenues deducted from the pool.
Making decisions and determining fates by the casting of lots has a long history, including several instances in the Bible. But the lottery’s use as a means of distributing material goods is more recent, although it may be considerably older than the oldest European lottery recorded in 1546. The prize funds were used to finance repairs in the city of Bruges.
Today, the most popular lotteries are those that offer a combination of large prizes and small prizes. These include the Mega Millions, Powerball, and state games like California’s Scratch-Off Game. These can range in value from a few hundred dollars to the top prize of $1 billion. The prizes in these lotteries are determined by a combination of chance and skill, with the majority of the prizes being money, while the rest is usually a combination of goods or services.
The bottom line is that a significant portion of the prize money is distributed to those who are skilled at playing the lottery. In many cases, these are the same individuals who also spend a significant percentage of their income on tickets. Moreover, they tend to be lower-income, less educated, and nonwhite. Consequently, these groups represent a large portion of the lottery player population.