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14 - Rationality and efficiency in lotto games

Published online by Cambridge University Press:  09 July 2009

By
Victor A. Matheson  and
Kent R. Grote
Edited by
Leighton Vaughan Williams
Leighton Vaughan Williams
Affiliation:
Nottingham Trent University
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Summary

Introduction to the ‘lotto’ game

‘Lotto’ is among the most popular games offered by state lottery associations accounting for roughly one-quarter of total revenues for state-run US lotteries in the late 1990s and early 2000s. As of August 2004, forty states had state-run lotteries, and every state with a lottery offered some version of a lotto game either through their own game or through a multi-state association such as the twenty-seven-state Multi-State Lottery Association (Powerball) or the eleven-state Big Game/Mega-Millions association.

Lotto games generally consist of an individual picking a set of five or six numbers from a group of approximately 35–55 choices. Winning numbers are then randomly selected at a weekly or bi-weekly drawing. A player whose ticket matches all of the winning numbers wins the jackpot prize, which is funded by allocating a percentage of ticket sales to the jackpot prize pool. Players matching some but not all of the winning numbers win smaller consolation prizes. If more than one ticket matches all the numbers, the money in the fund is divided evenly among the number of winning tickets while if no ticket matches the winning numbers, the money in the fund is carried over into the next drawing and is added on to the allocated funds from ticket sales in the next period. Because the jackpot prize fund is allowed to roll-over in this manner, the jackpot prize can become quite large if no one hits the jackpot in a large number of successive periods.

Type
Chapter
Information
Information Efficiency in Financial and Betting Markets , pp. 313 - 329
Publisher: Cambridge University Press
Print publication year: 2005

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References

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Matheson, V. and Grote, K. (2003) ‘Jacking up the Jackpot: Are Lotto Consumers Fooled by Annuity Payments?’, Public Finance Review, 31(5), pp. 550–67CrossRefGoogle Scholar
Matheson, V. and Grote, K.(2004) ‘Lotto Fever! Do Lottery Players Act Rationally Around Large Jackpots?’, Economics Letters, 84(2), pp. 233–37CrossRefGoogle Scholar
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