First, lotteries offer an opportunity to study how consumers react to straightforward risky situations. Other forms of risk-taking--investing in the stock market, for example--or even many forms of gambling--handicapping horses, for example--do not offer the simplistic situation posed by lotteries. These instruments involve nothing more than a small payment followed by a purely random determination of winner and losers. The potential winnings, moreover, can range from the nugatory (a free ticket) to the awe-inspiring (in July of 1993 the Powerball jackpot reached $110 million). Besides gaining insights into consumer behavior in risky situations, lottery research is important for public policy issues. Lottery profits are donated to state funds, so predicting the revenue-generating capability of a state's portfolio of games helps budgetary planners. Similarly, knowing what factors affect revenue generation will benefit the state as a whole. Finally, another aspect of public policy often studied is where the lottery--which can be considered a voluntary transfer of wealth from the state's residents to the state--receives its funds. In particular, is this voluntary tax skewed towards the poor in terms of who contributes?
Roush '97, Brett, "The Economic Rationale of a Multi-State Lotto" (1997). Honors Projects. 67.