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Testing for Efficiency in Lotto Markets

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  • Scott, Frank A, Jr
  • Gulley, O David

Abstract

State-sponsored lotto games, because they are pari-mutuel and because jackpots with no winners are rolled over into the next drawing, present an excellent opportunity to test for market efficiency. Using data from Massachusetts, Kentucky, and Ohio, the authors investigate bettors' responses and test for weak-form efficiency. Lotto bets do not have positive net expected returns, thus weak-form efficiency exists. To evaluate strong-form efficiency, the authors utilize the concept of a rational expectations equilibrium. They find that, in general, lotto bettors' decisions to play generate a level of sales that conform to their original forecasts of expected value. Copyright 1995 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 33 (1995)
Issue (Month): 2 (April)
Pages: 175-88

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Handle: RePEc:oup:ecinqu:v:33:y:1995:i:2:p:175-88

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Cited by:
  1. Kent R. Grote & Victor A. Matheson, 2006. "In Search of a Fair Bet in the Lottery," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 673-684, Fall.
  2. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: A Survey of the Literature," Working Papers 1109, College of the Holy Cross, Department of Economics.
  3. Victor Matheson & Kent Grote, 2005. "Examining the Halo Effect in Lotto Games," Working Papers 0513, College of the Holy Cross, Department of Economics.
  4. S. Capacci & E. Randon & A. E. Scorcu, 2014. "Luck vs Skill in Gambling over the Recession. Evidence from Italy," Working Papers wp918, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Papachristou, George & Karamanis, Dimitri, 1998. "Investigating efficiency in betting markets: Evidence from the Greek 6/49 Lotto," Journal of Banking & Finance, Elsevier, vol. 22(12), pages 1597-1615, December.
  6. Beenstock, Michael & Haitovsky, Yoel, 2001. "Lottomania and other anomalies in the market for lotto," Journal of Economic Psychology, Elsevier, vol. 22(6), pages 721-744, December.
  7. Victor Matheson & Kent Grote, 2004. "Dueling Jackpots: Are Competing Lotto Games Complements or Substitutes?," Working Papers 0406, College of the Holy Cross, Department of Economics.
  8. Walther Herbert, 2005. "Optimal Taxation of Gambling and Lotto," Working Papers geewp47, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  9. Beenstock, Michael & Goldin, Ephraim & Haitovsky, Yoel, 2000. "What jackpot? The optimal lottery tax," European Journal of Political Economy, Elsevier, vol. 16(4), pages 655-671, November.
  10. Matheson, Victor A. & Grote, Kent R., 2004. "Lotto fever: do lottery players act rationally around large jackpots?," Economics Letters, Elsevier, vol. 83(2), pages 233-237, May.
  11. Andrew C. Worthington & Kerry Brown & Mary Crawford & David Pickernell, 2003. "Socioeconomic And Demographic Determinants Of Household Gambling In Australia," School of Economics and Finance Discussion Papers and Working Papers Series 156, School of Economics and Finance, Queensland University of Technology.
  12. Humphreys, Brad & Perez, Levi, 2011. "Lottery Participants and Revenues: An International Survey of Economic Research on Lotteries," Working Papers 2011-17, University of Alberta, Department of Economics.

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