Lottery is an arrangement whereby one or more prizes are awarded by a process that relies wholly on chance. Such an arrangement cannot reasonably be prohibited by any rule of law, although it may be regulated in order to prevent certain types of unfair practices.
Lotteries typically involve a small amount of money paid to purchase the chance to win a large sum of cash. The prize money is often distributed to good causes. Lotteries are also popular in the sports world. For example, in the National Basketball Association (NBA), lottery numbers are randomly drawn to determine draft picks for each team.
People buy lottery tickets to increase their chances of winning a prize, and to enjoy the fantasy of becoming rich. Those decisions are not accounted for by decision models based on expected value maximization, since the cost of lottery tickets is higher than the expected prize. Nevertheless, the purchase of tickets can be explained by risk-seeking behavior, and more general models can account for this.
The first recorded lotteries to offer tickets with prizes in the form of money were held in the Low Countries in the 15th century, to raise funds for town fortifications and to help the poor. A lottery was subsequently introduced in France by King Francis I in the 1500s, but the French lotteries remained a small part of state finances for the two centuries that followed. In the United States, lottery revenues are used for a variety of public purposes. The winnings are often awarded in the form of a lump sum, but withholdings and taxes can reduce this amount substantially.
