Throughout history, lotteries have been widely embraced as a source of “painless” revenue — that is, a way for state governments to raise money without imposing especially onerous taxes on the public. This arrangement was particularly popular in states with larger social safety nets, where the extra cash could help fund things like education, housing and infrastructure projects.
But as with all gambling, there is a dark underside to lottery play. As we reported last week, researchers have found that state lotteries promote irrational gambling behavior among certain groups of people. Men, for example, tend to play more than women, and blacks and Hispanics more than whites. They also tend to play more than their income level would suggest, as lottery advertising often presents misleading information about the odds of winning — e.g., describing the odds of hitting a jackpot as “nearly 1 in 2” when they are closer to 1 in 20.
Many people also have a hard time understanding how the odds of winning are calculated. To address this, Clotfelter’s team has created a website called “What’s the Odds?” that allows users to enter a series of numbers and see their probability of winning. Users can even choose to let the computer pick their numbers for them. (Be careful with this feature, however, as choosing personal numbers such as birthdays can lead to more frequent wins.)
In addition, players must consider whether or not to share their winnings with family and friends, as well as the pros and cons of accepting a lump sum of money versus receiving an annuity over a period of time. While it may be tempting to tell as many people as possible, Clotfelter recommends that winners put together a team of professionals, including an attorney, accountant and financial planner, who can help them weigh their options.