Lottery – Is it a Rational Investment?


Lottery is a form of gambling in which numbers are drawn to determine the winner of a prize. The practice of determining the distribution of property and other assets by lot is a long-standing one, with dozens of examples in the Bible and several instances in Roman history (Nero was a big fan) but the lottery as we know it today is comparatively recent. The first public lotteries to offer tickets with prizes in the form of money were held in the 15th century, though the idea had been around much longer; it is attested to by town records from Ghent and Utrecht dating back as far as the 14th century.

In the modern incarnation of the game, lotteries have gained popularity in part because of the low cost and ease of organizing them. They have also been widely promoted by government officials, who argue that they provide a tax-free way to raise funds for projects ranging from public works to sports teams. But the games have their critics, who point to their inability to raise enough funds to justify their costs and to the unequal distribution of prizes.

Moreover, studies have found that the bulk of the players and revenues are from middle-income neighborhoods, with very few proportionally coming from high- or low-income neighborhoods. The poor, in fact, are disproportionately less likely to play the game, and are more likely to be deterred by its high costs, low probabilities of winning and the specter of corruption in state-run lotteries.

As for the question of whether a person is rational in making an investment decision in the lottery, economists have argued that if the entertainment value and other non-monetary benefits received by a person outweigh the disutility of a monetary loss, then the purchase of a ticket is a rational choice. But there is a dark underbelly to this, as we have seen in the case of the lottery in the United States, which has tangled up with race and slavery in particularly ugly ways.

Cohen writes that the lottery became popular in America after the Civil War because of the influx of Black voters, who were looking for ways to escape poverty and the ravages of the Civil War. These voters supported legalization of the lottery by arguing that since people were going to gamble anyway, the state might as well profit from it. This argument, however, ignored the morality of gambling and the broader social implications of state profits from a business whose primary purpose is to take people’s money.

A few people have managed to beat the odds and become lottery winners, but most fail to understand the true nature of probability, focusing instead on superstition and fear. The truth is that it is possible to become a lottery winner, but only if you are willing to learn how to do it and to make the right choices. This takes time and effort, but it is well worth the effort if you want to live the good life.