The True Costs of the Lottery

In the United States alone, lottery players spend upward of $100 billion a year, making it the most popular form of gambling. Almost every state has a lottery, and its proceeds provide an important source of revenue for a variety of government programs. But how meaningful this revenue is, and whether it’s worth the trade-off to people who lose money by playing it, is up for debate.

The idea of determining fates by the casting of lots has a long history—including several instances in the Bible—but using lotteries for material gain is far more recent. In the early 18th century, lottery games became commonplace in the Netherlands and were hailed as a painless form of taxation, wherein participants voluntarily spent their own money (rather than paying an additional fee to support a public service).

Modern lottery operations have evolved along similar paths. A state legislature establishes a monopoly; forms an agency or public corporation to run it (as opposed to licensing a private firm in return for a portion of the profits); starts with a modest number of relatively simple games, and then, under constant pressure to grow revenues, progressively expands its portfolio of offerings. Initially, revenue growth is dramatic, but eventually the lottery reaches saturation and begins to decline. This is because the majority of lottery participants play for long periods of time and become bored with the same old games.

To combat this, lottery officials frequently introduce new games to keep things fresh and exciting, but these innovations often do little to increase revenues. Moreover, lottery operators are often reluctant to change the odds of a game to boost its popularity. Instead, they rely on “aggressive marketing” tactics to reach out to new audiences and to encourage more participation from existing ones.

This strategy, in turn, undermines the lottery’s basic tenet: that it’s a form of gambling that’s fair and responsible. Rather than promoting the games as a way to give people a chance to improve their lives, the industry relies on consumers’ irrational hope for a better future, which is not backed by statistics or economics.

This is why it is so important for policymakers to examine the lottery’s true costs. The fact is, the vast majority of lottery funds are spent by a small proportion of players—the super users who spend $50 or $100 a week. And because these players are so dedicated to their hobby, they tend to ignore the fact that they’re being duped by bad odds. As a result, they end up losing more than they should, and the rest of us pay for it.