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The Economics of Lottery


A lottery is a form of gambling in which people buy numbered tickets. The winning numbers are chosen by chance in a drawing and the winners receive a prize, usually money. Governments often run lotteries to raise money for a variety of projects and charities.

The most common type of lottery is a money prize, but prizes may also be goods or services. The first European public lotteries awarded money prizes in the modern sense of the word began in the 15th century, when Burgundy and Flanders towns held lottery-like games to raise funds for the poor or to fortify their defenses. The practice spread to colonial America, where Benjamin Franklin and George Washington organized lotteries to finance their war efforts. Lotteries were also popular in the early United States as a way to fund public works such as roads, canals, libraries, and churches.

State-run lotteries take in billions of dollars annually. After paying out the prize amounts and covering operating and promotional costs, governments keep the remaining revenue for their budgets. Because lottery revenues are not as transparent as a sales tax, the public is not as aware of the implicit tax rate that they’re paying when they buy a ticket. In addition, many lottery players are not savvy enough about the odds of winning to understand how much their odds are really bad. This article explains the economics of Lottery in a straightforward way for kids and adults, and could be used as part of a Personal Finance or Financial Literacy course or curriculum.