Should You Buy a Lottery Ticket?

In a world of limited social mobility, lotteries offer the tantalizing promise of instant riches. And the truth is, there’s a certain inextricable human impulse to play them. That’s why you see billboards on the highway promising big jackpots and Powerball payouts. It’s also why you hear about people who spend their entire retirement savings on lottery tickets.

But how do people justify these purchases? The answer lies in the concept of utility. If the entertainment value derived from playing the lottery exceeds the cost of the ticket, then it could be considered a good investment. But what if the odds of winning are so remote that they actually diminish the overall value of the experience? In this case, the lottery might be considered a bad choice.

The first known lotteries involving tickets with prizes in the form of money were held in Europe in the 15th century, according to town records from Ghent, Utrecht and Bruges. But it was only when state-owned lotteries were established in the 1970s that the phenomenon became widespread.

Today, 44 states and the District of Columbia run lotteries. The six states that don’t (and you can’t play Powerball or Mega Millions there) are Alabama, Alaska, Hawaii, Mississippi, Utah and Nevada. The reasons for these exceptions vary: Alabama, for religious concerns; Hawaii, for the fact that its residents are already allowed to gamble; Mississippi and Nevada because gambling is legal in those states; and Alaska because the state government doesn’t want to compete with Las Vegas and other casinos for lottery revenues.

New Hampshire introduced a state lottery in 1964, and other states quickly followed suit. Lotteries are very profitable for state governments, whose revenue streams grow dramatically after they’re introduced. But they eventually start to flatten and sometimes even decline, prompting officials to introduce new games.

Typically, winners can choose between receiving annuity payments or one-time cash. The former option offers an income tax-free payout, but it’s a smaller amount than the advertised jackpot due to the time value of money, and because withholdings will reduce the final payout. The latter option is more common in the United States, but it’s worth noting that there are some differences in the way lottery winnings are paid in other countries.

While most people buy tickets in the hope of winning the big jackpot, the chances of doing so are very slim. But you can improve your odds by buying multiple tickets, which increases the number of combinations you’ll have to match. And you can increase your chances of hitting the jackpot by purchasing your tickets at discount prices, avoiding the expensive “hot numbers” and choosing a balanced set of numbers — three odd and two even. (As an example, this strategy worked for a couple from Michigan who made millions over nine years.)