Are Lotteries a Good Use of State Funds?


The casting of lots for decisions and fates has a long history, attested to in the Bible and throughout Roman culture (Nero liked lotteries, for example). Lotteries are also common in modern societies as a way to raise money for public works projects. In fact, they’re a very big business — Americans spend $80 billion a year on them. But are they a good use of state funds?

It turns out that in the short term, winning the lottery does indeed increase a person’s utility. But in the longer term, it can have the opposite effect. In fact, the vast majority of lottery winners go bankrupt within a few years. The reason has nothing to do with luck, and everything to do with the fact that winning a large sum of money creates a lot of other problems.

In a nutshell, the problem is that most people don’t understand how much the odds of winning really matter. When the first-ever lottery was launched, it offered one-in-three million odds — in other words, almost no chance at all. Nevertheless, the popularity of the lottery grew rapidly, as did people’s obsession with unimaginable wealth. This development coincided with a time of declining financial security for the working class: wages stagnated, pensions and health insurance costs rose, and the national promise that education and hard work would make everyone richer than their parents eroded.

By the late nineteen-sixties, as states searched desperately for ways to balance their budgets without enraging anti-tax voters, they began to embrace gambling as a legitimate source of revenue. They argued that since people were going to gamble anyway, they might as well let the government reap the profits. This argument had its limits—it didn’t cover the fact that lotteries drew disproportionately from poor communities, which were unable to pay for the services the lottery money paid for.

The story Cohen tells starts with a small town in rural America, a place where traditions and customs rule the day. The lottery in this community revolves around a wooden box with a black dot on it, which holds all the tickets that were sold for that draw. In order to participate, one simply puts a slip of paper in the box. The winners are chosen by a random drawing. The prizes themselves, which are often cash or goods, vary in value. But the total value of the prizes is always less than what was spent on promoting and running the lottery. This difference is the profit for the lottery promoter. It’s this profit that lottery advocates point to when arguing that the arrangement is “neither morally nor ethically wrong.”