Many states and the District of Columbia offer lotteries, which are games of chance in which you try to win a prize by selecting a combination of numbers. Many people spend billions of dollars annually on lottery tickets. Whether they win or lose, they know the odds are long. And yet, they keep playing. There are a few reasons for this. One is that, for some, the entertainment value of the game outweighs the disutility of a monetary loss. But more importantly, they may believe that a jackpot is their last or only chance at a better life.
A big payout may also drive ticket sales, if it’s announced on the news or in commercials. A few large jackpots a year are the norm, and they help generate publicity for the game. But the larger the prize, the less likely a winner will be. So if a state wants to keep ticket sales robust, it must reduce the prize size. And when that happens, it must also reduce the percentage of ticket sales available for state revenue and other uses—which may explain why lottery proceeds are not a transparent tax.
Lottery is a form of gambling, but it is often justified by arguing that governments need the money, or at least that a government can’t raise taxes. But that’s a dangerous argument. It’s not only unjustified, but it also distorts public policies and creates incentives that are wildly out of line with the way the real economy works.