Americans spent more than $80 billion on lottery tickets last year. Many of those tickets are purchased by people living paycheck to paycheck. For some, the chance to fantasize about winning a fortune at a cost of a few bucks is worth it. For others, the money spent on tickets is a hidden tax that could be better used to build an emergency fund or pay off debt.
A competition based on chance, in which numbered tickets are sold and prizes are awarded to the holders of numbers drawn at random. A lottery may be state or commercial, with a variety of prize levels available from small to grand. The word is derived from the Dutch noun lot meaning “fate.” Modern lotteries include those used for military conscription, commercial promotions in which property is given away randomly, and public and private jury selection processes.
The purchase of lottery tickets cannot be accounted for by decision models based on expected value maximization, because each ticket has an independent probability that is not affected by the frequency or number of other tickets purchased for the same drawing. The purchase of tickets can be justified by entertainment and any other non-monetary values, but people maximizing expected utility will not buy tickets.
Studies have found that those with low incomes play the lottery more frequently than others, and often in higher amounts. In addition, the taxes on lottery winnings are high – most winners end up paying about 37 percent in federal income tax on their winnings, and state taxes may be added as well.