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An Economist's Guide to Lottery Design

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  • Walker, Ian
  • Young, Juliet

Abstract

This paper outlines the issues relevant to the design of pari-mutuel lottery games and makes inferences about game design effects from estimates of how rollovers affect sales. Lottery tickets sales depend positively on the proportion of revenue returned as prizes, positively on the skewness of the prize distribution (which depends largely on how much of the prize money goes to the jackpot), and negatively on the variance in the prize distribution (which depends largely on how much goes on smaller prizes). We simulate the effects of envisaged game design changes on sales revenue and find potentially large effects.

Suggested Citation

  • Walker, Ian & Young, Juliet, 2001. "An Economist's Guide to Lottery Design," Economic Journal, Royal Economic Society, vol. 111(475), pages 700-722, November.
    • Handle: RePEc:ecj:econjl:v:111:y:2001:i:475:p:f700-722
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    Citations

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    Cited by:

    1. Alexis DIRER, 2010. "Equilibrium Lottery Games and Preferences Under Risk," LEO Working Papers / DR LEO 550, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. McHale, I.G. & Peel, D.A., 2010. "Habit and long memory in UK lottery sales," Economics Letters, Elsevier, vol. 109(1), pages 7-10, October.
    3. Melisa Bubonya & David P. Byrne, 2015. "Supplying Slot Machines to the Poor," Melbourne Institute Working Paper Series wp2015n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. Thomas Astebro & José Mata & Luis Santos-Pinto, 2009. "Preference for Skew in Lotteries: Evidence from the Laboratory," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 09.09, Université de Lausanne, Faculté des HEC, DEEP.
    5. Peel, D.A., 2010. "On lottery sales, jackpot sizes and irrationality: A cautionary note," Economics Letters, Elsevier, vol. 109(3), pages 161-163, December.
    6. 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.
    7. Turan G. Bali & Nusret Cakici & Robert F. Whitelaw, 2009. "Maxing Out: Stocks as Lotteries and the Cross-Section of Expected Returns," NBER Working Papers 14804, National Bureau of Economic Research, Inc.
    8. Marie-Hélène Broihanne & Maxime Merli & Patrick Roger, 2016. "Diversification, gambling and market forces," Review of Quantitative Finance and Accounting, Springer, vol. 47(1), pages 129-157, July.
    9. Brad Humphreys & Levi Perez, 2012. "Network externalities in consumer spending on lottery games: evidence from Spain," Empirical Economics, Springer, vol. 42(3), pages 929-945, June.
    10. Chen, Shu-Heng & Chie, Bin-Tzong, 2008. "Lottery markets design, micro-structure, and macro-behavior: An ACE approach," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 463-480, August.
    11. Walther Herbert, 2005. "Optimal Taxation of Gambling and Lotto," Working Papers geewp47, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.

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