The ‘Who and Why’ of Lottery: Empirical Highlights From the Seminal Economic Literature

Abstract

Lotteries operate today in many countries around the world. This type of gambling is usually run by governments and is sometimes described as regressive. Lottery is an unfair bet, so explaining the purchase of lottery tickets by risk‐averse consumers has been a challenge for economic theory. Lotteries can be analysed from either of two economic perspectives: as a source of public revenue or as a consumer commodity. In this paper the state of economic research on lotteries is reviewed, focusing on its main empirical findings.

The Effects of Lotto Game Changes and Large Jackpots on Income Elasticities and Sales

“…The literature consistently finds income elasticities of less than one for state lotteries as a whole, with variation in income elasticity across types of lottery games, as discussed in the lottery literature surveys by Grote and Matheson () and Perez and Humphreys (). That is, people in geographical areas with lower income spend a relatively greater percentage of their income on lottery products, resulting in state lotteries being a regressive source of state revenue.…”

“…Although a single state acting alone could achieve larger jackpots for a lottery game simply by lengthening its odds, the lower frequency of winners could decrease interest in the game. These scale economies of lottery games are further discussed in Perez and Humphreys (, 920)…”

Predicting Lotto Numbers: A Natural Experiment on the Gambler's Fallacy and the Hot-Hand Fallacy

“…Our regressions control for various factors that plausibly affect betting behavior. First, betting is known to go up in weeks when the jackpot is “rolled over” from the previous week (e.g., Perez ). To illustrate, in an average rollover week, the total amount bet in our sample is about 23% higher than in a nonrollover week (DKK 1.16 million vs. DKK 0.95 million, or about 155,100 vs. 126,200 euros).…”

Participation and expenditure of migrants in the illegal lottery in China’s Pearl River Delta

“…Theoretical and empirical research on the economics of lotteries has been plentiful (Ariyabuddhiphongs 2011;Clotfelter and Cook 1990;Perez and Humphreys 2013). The majority of these studies have focused on mature legal lottery markets (such as Australia, Spain, the United Kingdom, and the US).…”