Legalization of lotteries in the 1980s

The decade of the 1980s has witnessed an explosion in legalized gambling. Most dramatic has been the growth of state-sponsored lotteries. The spread of these state-operated lotteries is the result of pressure for more revenues for state operating costs. Lotteries are viewed as a means of raising these revenues: In 1987, state-operated lotteries grossed over $12 billion in sales. Eight states had sales exceeding $1 billion (New York Times, 1988). Clearly, state lotteries have become big business. The purpose of this article is to describe the spread of lotteries in the 1980s and to note the minimal attention given to compulsive gambling in debates on lotteries.Mr. Braidfoot is General Counsel for the Christian Life Commission of the Southern Baptist Convention. He is the author ofGambling: The Deadly Game.     

An informationally parsimonious impartial observer theorem

In Harsanyi's impartial observer theorem, an impartial observer determines a social ordering of the lotteries on the set of social alternatives based on a sympathetic but impartial concern for all individuals in society. This ordering is derived from a more primitive ordering on the set of all extended lotteries. An extended lottery is a lottery which determines both the observer's personal identity and the social alternative. We establish a version of Harsanyi's theorem in which the observer is only required to have preferences on the extended lotteries in which there is an equal chance of being any person in society. Received: 19 June 1996 / Accepted: 30 December 1996     

Extended Pareto rules and relative utilitarianism

This paper introduces the “Extended Pareto” axiom on Social Welfare Functions and gives a characterization of the axiom when it is assumed that the Social Welfare Functions that satisfy it in a framework of preferences over lotteries also satisfy the restrictions (on the domain and range of preferences) implied by the von-Neumann Morgenstern axioms. With the addition of 2 other axioms: “Anonymity” and a weak version of Arrow's Independence of Irrelevant Alternatives axiom: “Weak IIA” it is shown that there is a unique Social Welfare Function called “Relative Utilitarianism” that consists of normalising individual utilities between 0 and 1 and adding them. Received: 7 June 1994 / Accepted: 28 April 1997     

Probabilistic assignment of indivisible goods with single-peaked preferences

We consider the problem of assigning indivisible goods among a group of agents with lotteries when the preference profile is single-peaked. Unfortunately, even on this restricted domain of preferences, equal treatment of equals, stochastic dominance efficiency, and stochastic dominance strategy-proofness are incompatible.     

GET OUT THE (COSTLY) VOTE: INSTITUTIONAL DESIGN FOR GREATER PARTICIPATION

We examine two commonly discussed institutions inducing turnout: abstention penalties (used in 32 countries) and lotteries rewarding one randomly chosen participant (as proposed on the 2006 Arizona ballot). We analyze a benchmark model in which voters vary in their information quality and participation is costly. We illustrate that both institutions can improve collective outcomes, though lotteries are a more effective instrument asymptotically. Experimentally, we provide strong evidence for selective participation: lab voters participate more when better informed or when institutionally induced. Lotteries fare better than fines, suggesting that they may be a useful alternative to commonly used compulsory voting schemes. (JEL C92, D72, D02)     

On complexity and lotteries' evaluation – three experimental observations

We present experimental evidence suggesting that human subjects penalize lotteries for complexity. Our results contradict the assumption that human agents follow the discounted expected utility model in multi-period choice with uncertainty. In particular, we show that the buying price offered for an inferior, simple multi-period lottery may sometimes significantly exceed the buying price offered for a better, yet more complicated, alternative, when the lotteries are sold to a group of subjects in a first-price auction. We discuss the possibility to modify the existing models of choice to this “complexity effect”.     

Lottery Gambling: A Review

This paper presents an exhaustive review of the literature on lottery gambling involving numbers games, lotto, and scratch cards. Results provide tentative answers to the question why people buy lotteries, and support the theory of judgment under uncertainty, cognitive theory of gambling, and theory of demand for gambles. Results also indicate some potential addictiveness of this form of gambling. Youths buy different forms of lotteries and the best predictor of their lottery purchases is their parents’ lottery participation. Contrary to the myth that a big lottery win will ruin the winners’ lives, lottery winners tend to be well-adjusted and their life quality seems to improve. Suggestions for future research are discussed.     

DRAWN INTO VIOLENCE: EVIDENCE ON “WHAT MAKES A CRIMINAL” FROM THE VIETNAM DRAFT LOTTERIES

Draft lottery number assignment during the Vietnam Era provides a natural experiment to examine the effects of military service on crime. Using exact dates of birth for inmates in state and federal prisons in 1979, 1986, and 1991, we find that draft eligibility increases incarceration for violent crimes but decreases incarceration for nonviolent crimes among whites. This is particularly evident in 1979, where two‐sample instrumental variable estimates indicate that military service increases the probability of incarceration for a violent crime by 0.34 percentage points and decreases the probability of incarceration for a nonviolent crime by 0.30 percentage points. We conduct two falsification tests, one that applies each of the three binding lotteries to unaffected cohorts and another that considers the effects of lotteries that were not used to draft servicemen. (JEL K42, H56)     

Lottery mania: An Editor's view

The growth and transformation of state lotteries in the United States during the last half of the twentieth century has been dramatic. As lotteries have evolved into high stakes games of a pari-mutuel nature, states have come to rely on them as revenue generators. But lotteries have only limited ability to raise funds for government, and unintended social consequences derived from their growth and evolution may outweigh their revenue generating capacity.This a revision of a paper presented at the Fourth National Conference on Compulsive Gambling, June 3, 1989, Des Moines, Iowa.     

The effects of state lotteries on the pari-mutuel industry

The growth and success of state lotteries in the United States and Canada has been matched by a corresponding decline in pari-mutuel handle and attendance, especially in horse racing, causing speculation about the lotteries' presumed negative impact on that industry. This paper presents evidence showing that lotteries are not responsible for the financial problems of the pari-mutuel industry because many people buy lottery tickets exclusively. Further evidence indicates that the pari-mutuel industry would benefit from a decrease in governments' take-out rate and more vigorous marketing campaigns.     

UNDERPRICING IN PUBLIC LOTTERIES: A CRITIQUE OF USER-PAY AND ALL-PAY TARIFFS

A body of literature spanning from medical ethics to public economics has amassed regarding the rationing of underpriced public resources. This study investigates the effects of price on entry, individual and aggregate expected consumer surplus, and tax revenues in user-pay and all-pay (AP) lotteries. Comparative statics indicate that expected surplus may increase (decrease) as price increases (decreases) if entry is sufficiently responsive though entry in AP lotteries is inelastic at all prices. Further, the lotteries are shown to be outcome equivalent under revenue equivalency. Selected results are evaluated numerically with simulations performed across a broad class of distributions describing individual private values. ( JEL D45, D61, H42)     

Risky social choice with incomplete or noisy interpersonal comparisons of well-being

In this study, we develop a model of social choice over lotteries, where people’s psychological characteristics are mutable, their preferences may be incomplete, and incomplete or noisy interpersonal comparisons of well-being are possible. Formally, we suppose individual preferences are described by a von Neumann-Morgenstern (vNM) preference order on a space of lotteries over psychophysical states; the social planner must construct a vNM preference order on lotteries over social states. First, we consider a model where the individual vNM preference order is incomplete (so not all interpersonal comparisons are possible). Then, we consider a model where the individual vNM preference order is complete, but unknown to the planner, and thus modelled by a random variable. In both cases, we obtain characterizations of a utilitarian social welfare function.     

EDUCATION'S GAMBLING PROBLEM: EARMARKED LOTTERY REVENUES AND CHARITABLE DONATIONS TO EDUCATION

I examine the impact that lotteries introduced to support education have on voluntary contributions to education. State lotteries, and the causes they are introduced to support, are highly publicized. This provides the opportunity to assess whether donors are crowded‐out by government spending of which they are almost certainly aware. Using donor‐level survey data and nonprofits' tax returns, I find that donations to education‐related organizations fall with the introduction of a lottery. This result is driven by donors' response to the new (highly publicized) government revenue source (rather than a decrease in nonprofit fundraising efforts). (JEL D64, H3, H75)     

Lottery marketing in Québec and social deprivation: excessive exposure,insufficient protection?

In 2008, the Institut national de santé publique du Québec (INSPQ) undertook a research programme on lotteries. The preliminary qualitative exploratory component enabled us to observe the diversity and ubiquity of lottery advertising to which the vast majority of the population is exposed, including minors and non-players. The aim of a second component was to better comprehend the relationships between exposure to lottery marketing, lottery purchasing habits, attitudes towards gambling, and socio-economic vulnerability indicators. The study's data was collected by a polling firm from a representative sample of adults in the Québec population (n = 2001). Our survey revealed significant links between exposure, gambling behaviour and certain socio-economic indicators: for example, individuals with lower levels of education more often play the lotteries and spend the most on them. In addition, a greater number of people who are less educated and from a low-income household considered that lottery advertising was very or excessively present in their daily lives and that the amount of advertising has increased in recent years. From the perspective of creating healthy environments and protecting vulnerable populations, legislative measures to control the quantity, location and contents of gambling marketing would be promising preventive measures.     

Opposing the Lottery in the United States: Forces behind Individual Attitudes towards Legalisation in 1975

In the 1970s, opposition to the lottery started to fracture in the USA. This study examines causes of the fracture and historical factors that contributed to changes in individual attitudes towards legalisation. The opponents at the time held to traditional arguments against legalised lotteries—negative economic effects, costs to others and increased crime. Unlike the past, however, there was weak religious institutional opposition to lotteries. Individuals with a strong commitment to their religious affiliation were more resistant to pro-lottery arguments, but in most cases could be convinced to support the lottery. The pre-World War II generation remained steadfast against the lottery, but there was relatively greater support among the post-World War II generation. This study has examined the 1975 survey data using a logit model to predict future legalisation in states with large population samples. As expected, analysis of 1975 attitudes shows that states with low levels of opposition are likely to legalise lotteries earlier than states with high levels of opposition.     

Risk, complexity, and deviations from expected-value maximization: Results of a lottery choice experiment

Varying several parameters of single-stage lottery choice tasks we investigate the question which features of a decision task lead subjects to deviate from maximizing expected monetary value (EV). Despite small differences in EV between the two lotteries in the choice sets, the subjects on average chose the lottery with the higher EV in every task. Risk avoidance occurs, but not consistently over all tasks. Further results are that subjects prefer less complex lotteries over more complex ones, and that risk matters the more the less complex the decision task is.     

Lotteries in the state fiscal system

Lotteries give states direct revenue from the commercial gambling market. Thirty-two states plus the District of Columbia, encompassing almost three-quarters of the population, operate games, a dramatic spread since the first modern lottery in New Hampshire (1964). These lotteries typically make only a small contribution to state finances, yield revenue that is subject to dramatic annual changes, are expensive to administer, and place relatively greater burdens on low income than on high income individuals. Proceeds are often dedicated to particular functions, but whether lottery proceeds do more than simply substitute for funds that the function would otherwise receive is doubtful. The fiscal limitations of lotteries have not dimmed the public popularity of the games.     

ALLOCATION OF GOODS BY LOTTERY

Many authors have argued that lotteries are used to allocate resources because of the fairness of the mechanism. However, a number of historical examples suggest otherwise. Participation fees are almost always charged and they are often discriminatory. In addition, goods (or bads) allocated by lotteries are usually not transferable. Both lottery participation fees and restrictions on transferability reduce rent-seeking from speculators. Each feature increases the rents to the primary user groups relative to the rents attainable from alternative mechanisms such as auctions, queues, or merit allocations.     

Generalized stochastic dominance and bad outcome aversion

Incomplete preferences over lotteries on a finite set of alternatives satisfying, besides independence and continuity, a property called bad outcome aversion are considered. These preferences are characterized in terms of their specific multi-expected utility representations (cf. Dubra et al., J Econ Theory, 115:118–133, 2004), and can be seen as generalized stochastic dominance preferences.