Why Do People Play the Lottery?

Wharton’s Benjamin Lockwood explains why state-run lotteries are so compelling to consumers, even when they know the odds are stacked against winning.

Excerpt: "Americans spend more than $100 billion a year on lottery tickets, which is more than what they spend on cigarettes or on music, sports tickets, movie tickets, books, and video games combined.

With a high rate of negative expected returns and a large variance in prizes, lotteries aren’t a rational financial decision for consumers by any measure. But people keep buying more tickets every year, although the odds of winning a jackpot are about 1 in 300 million.

For Wharton economist Benjamin Lockwood, who studies how governments use taxes and other policy levers to change behavior, the inherent contradiction in lotteries proved too intriguing a topic to pass up. His co-authored paper, “What Drives Demand for State-Run Lotteries?

Evidence and Welfare Implications,” explores this understudied and controversial aspect of the economy to come up with new answers. It’s also the first to set a framework for an optimal lottery policy, one that accounts for the behavioral biases of consumers and the concerns about the distribution of wealth in society.

“As a researcher, you’re excited when you are working on something and genuinely don’t know the answer, and you can shed light on it,” Lockwood said. “This is an area where people have completely different arguments. Most economists are very uncertain about whether lotteries are beneficial. It’s amazing that it’s such a huge category of spending and consumption, yet we don’t know if it’s making people better off or not.”'