Lottery Purchases Are Not Explained by Expected Value Maximization Models

Lottery is a contest in which tokens are distributed or sold and the winning ones are selected by random drawing. There are many different types of lottery. Some, like the financial lottery, promise large cash prizes to paying participants. Others, like the lottery for housing units or kindergarten placements, are used to make scarce resources available to the public in a fair and efficient manner.

The marketing of state-run lotteries often emphasizes the positive impact on society. Despite this, the truth is that the lion’s share of the money spent on tickets comes from a relatively small group of people who play disproportionately often. These players are typically lower-income, less educated, nonwhite and male. This skews the results of lottery studies in which lottery purchases are analyzed.

While the number of people playing the lottery is huge, the number of applicants who win is much smaller. In fact, the average person does not even come close to winning the prize advertised on the billboards. This is because the probability of winning a large sum is overwhelmingly dominated by the small probabilities of losing, even for the longest time.

In addition, lottery purchasing is not accounted for by decision models based on expected value maximization. This is because the purchase of lottery tickets costs more than the expected value of winning, and therefore those who would maximize their expected utility should not buy them. However, some of the purchases can be explained by more general models based on risk-seeking behavior. In addition, winnings are not paid in a lump sum, as most participants expect. Instead, they must pay income taxes and are likely to get significantly less than the advertised jackpot (although the amount of withholdings depends on how lottery winnings are invested).