A lottery is a scheme for the distribution of prizes by lot or chance. In the United States, most states have lottery games, and a few also have private ones. In the US, winning a lottery prize can be very large. People spend billions of dollars on lottery tickets each year. But is it worth the risk?
In this article we look at whether buying a lottery ticket can be justified with decision models based on expected value maximization. We find that the purchase of a lottery ticket may be rational for some individuals if the entertainment value of winning is high enough, or if the ticket provides other non-monetary benefits. However, for most purchasers the disutility of a monetary loss is greater than the expected utility of winning.
We also discuss the reasons why many lottery winners end up bankrupt, and suggest ways that people can better use their lottery winnings to achieve their financial goals. In particular, we recommend that people avoid spending their winnings on luxury goods or other expensive items. Instead, they should save the money or invest it in a secure asset.