Lottery Demand Research Articles

Is Lottery Demand Driven by Effective Price? Evidence from the China Lottery Industry

There has been a long debate on whether the expected utility model can explain lottery purchase decision under uncertainty. The traditional strand of research, named the effective price approach, following the expected utility approach takes the expected loss of each ticket as the lottery price and uses this effective price to understand lottery demand. Another branch of literature, more from the prospect theory perspective, argues that lottery demand depends more on jackpot size, or small odds events, than expected values. It is hard to separately evaluate these two different approaches as they share common factors which are hard to cleanly differentiate. In this paper, we examine these two approaches by exploiting a unique lottery game setup in China. This lottery game is similar to the lotteries in other countries except that there is a cap policy on the grand prize, which limits the reward of each jackpot winner. We show that this seemingly complex cap-policy actually causes the whole lottery price to be almost fixed all of the time although the rollover money from the last draw significantly varies. This suggests that the effective price approach cannot explain the observed variation in lottery sales. We further conduct Monte Carlo simulations and provide evidence showing that the popular 2SLS method using rollover and its square as instruments in the effective price literature may give spurious estimation result. We also find that lottery sales are highly correlated to the rollover size.

Why Do People Tend to Buy Lottery Products? An Empirical Study on Demand for Lottery Products in Sri Lanka

Gambling has been part of human history since its beginning and different types of lottery gambling were recorded in the ancient period. Lotteries are now a big business, involving in more than half of the world countries. In the sense of economics, demand for lottery is illogical and irrational when comparing the probability of winning and low payout ratio. This paradoxical situation raises the question that why do people buy lotteries? This study focuses to examine the factors that help to explain the purchasing behavior of lottery buyers. A sample of 100 lottery buyers was selected for the study using purposive sampling technique. Data were collected through a sample survey of lottery buyers in Anuradhapura district using a semi structured questionnaire. Data analysis consists of descriptive statistical techniques, correlation, linear regression, ANOVA and Chi-Square tests. Results of the study revealed that psychological and demographical factors of lottery buyers influence on creating demand for lottery products. Further, significant and inverse relationships showed between education level of people with demand for the lottery products.

Local Price Variation and the Tax Incidence of State Lotteries

This paper explores the seemingly innocuous practice of ignoring the local price vector in empirical models of lottery demand. We argue using consumer theory that local consumption prices should be included and that the failure to consider local prices results in income elasticity of lottery demand estimates that are biased downward. Using a sample of MSAs, we find that, in accordance with our theory, local prices are a significant determinant of lottery sales and the income elasticity of demand for lotteries is greater in magnitude when the local price vector is considered. The degree of lottery regressivity is thus overstated when local prices are omitted. One notable finding is that the tax incidence of lotteries changes from regressive to progressive once the local price vector is included.

Who Gambles in the Stock Market?

ABSTRACTThis study shows that the propensity to gamble and investment decisions are correlated. At the aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery‐type stocks increases during economic downturns. In the cross‐section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery‐type stocks. Further, lottery investment levels are higher in regions with favorable lottery environments. Because lottery‐type stocks underperform, gambling‐related underperformance is greater among low‐income investors who excessively overweight lottery‐type stocks. These results indicate that state lotteries and lottery‐type stocks attract very similar socioeconomic clienteles.

Hitting the Jackpot or Hitting the Skids: Entertainment, Poverty, and the Demand for State Lotteries

Abstract. State‐sponsored lotteries are a lucrative source of revenue. Despite their low payout rates, lotteries are extremely popular, particularly among low‐income citizens. State officials laud the benefits of lottery proceeds and promote the fun and excitement of participation. This entertainment value is one explanation for lottery demand by the poor: individuals with lower incomes substitute lottery play for other entertainment. Alternatively, low‐income consumers may view lotteries as a convenient and otherwise rare opportunity for radically improving their standard of living. Bad times may cause desperation, and the desperate may turn to lotteries in an effort to escape hardship. This study tests these competing explanations. We examine lottery sales data from 39 states over 10 years and find a strong and positive relationship between sales and poverty rates. In contrast, we find no relationship between movie ticket sales, another inexpensive form of entertainment, and poverty rates.

Voting for a Lottery

State lotteries have been adopted by thirty-eight states, primarily as a means of funding “good causes” or closing budgetary gaps. While several studies have identified the regressive nature of lotteries and factors responsible for their expansion, less is known about the underlying voting patterns that have driven this expansion. This article examines county-level voting patterns from the 2002 Tennessee lottery referendum and county-level lottery expenditures to determine whether voting reflects a latent demand for lottery or is a deliberate attempt to shift the tax burden. The results indicate that the percentage voting for lottery approval and lottery expenditure is not correlated with income and negatively correlated with education. Voting patterns are therefore similar to lottery participation, suggesting that voting reflects a latent demand for lottery. Lottery expenditure patterns for border counties exhibit familiar cross-border shopping patterns. Casino gambling is a substitute for instant but not online games.

Is lottery demand elasticity a reliable marketing tool? Evidence from a game innovation in greece

Demand for lotteries and especially lotto has been extensively studied in an international context, an important question being whether lottery providers correctly price their product. In Greece a lotto game has been offered since 1990 whereas a new version was introduced seven years later with a clearly more skewed payoff. The objective of this paper is to analyze whether demand estimates from the original game help explain the subsequent innovation and to assess, in that sense, the reliability of demand estimates as a marketing tool. (JEL: D12, L83)

Size and frequency of prizes as determinants of the demand for lotteries

Three variables were assumed to characterize lotteries: prizes, probability of winning, and the cost of a ticket. Two studies were conducted: The first study utilized data from the Israeli “Lotto” system for a period of 60 months. In the second study subjects indicated their preferences among different problem sets that consisted of hypothetical lotteries which were constructed so as to resemble real lotteries. The results of both studies indicate that the size of the first prize as well as the number of small prizes had the major effect on the demand for lotteries. The results are discussed in terms of classical utility theory and alternative theories that emphasize the role of attention to a few key aspects rather than moments of the distribution of outcomes.

On the Economics of State Lotteries

This article examines several aspects of the economics of state lotteries, focusing primarily on the demand for lottery products. We begin by giving a descriptive overview. The succeeding sections examine the motivations for playing lottery games and evidence on the determinants of lottery demand. The final section considers the welfare economics of the apparent objective of lotteries—to maximize profits for the state.

Fixed cost of work and the demand for lotteries

A fixed cost of work is sufficient to induce risk-averse individuals, who obey the expected utility hypothesis, to demand lotteries. The critical assumption needed to generate this demand is that leisure is a normal good.