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In Search of a Fair Bet in the Lottery

  • Kent R. Grote

    ()

    (Lake Forest College)

  • Victor A. Matheson

    ()

    (College of the Holy Cross)

Although state-operated lotto games have the worst average expected payoffs among common games of chance, because the jackpot can accumulate, the maximum expected payoff is potentially unlimited. It is possible, therefore, that lotto can exhibit a positive expected return. This paper examines 18,000 drawings in 34 American lotteries and finds approximately 1 percent of these drawings provided players with a fair bet. If it were possible for a bettor to purchase every possible combination, however, most lotteries commonly experience circumstances where such a purchase would provide a positive return with 11 percent of the drawings providing a fair bet to the player.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume32/V32N4P673_684.pdf
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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 32 (2006)
Issue (Month): 4 (Fall)
Pages: 673-684

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Handle: RePEc:eej:eeconj:v:32:y:2006:i:4:p:673-684
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  1. L. C. MacLean & W. T. Ziemba & G. Blazenko, 1992. "Growth Versus Security in Dynamic Investment Analysis," Management Science, INFORMS, vol. 38(11), pages 1562-1585, November.
  2. Scott, Frank A, Jr & Gulley, O David, 1995. "Testing for Efficiency in Lotto Markets," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 175-88, April.
  3. Cook, Philip J & Clotfelter, Charles T, 1993. "The Peculiar Scale Economies of Lotto," American Economic Review, American Economic Association, vol. 83(3), pages 634-43, June.
  4. Kent Grote & Victor Matheson, 2006. "Dueling Jackpots: Are Competing Lotto Games Complements or Substitutes?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 34(1), pages 85-100, March.
  5. Anthony C. Krautmann & James E. Ciecka, 1993. "When Are State Lotteries a Good Bet?," Eastern Economic Journal, Eastern Economic Association, vol. 19(2), pages 157-164, Spring.
  6. Victor Matheson, 2001. "When Are State Lotteries a Good Bet (Revisited)?," Eastern Economic Journal, Eastern Economic Association, vol. 27(1), pages 55-70, Winter.
  7. Victor A. Matheson & Kent R. Grote, 2003. "Jacking Up the Jackpot: Are Lotto Consumers Fooled by Annuity Payments?," Public Finance Review, , vol. 31(5), pages 550-567, September.
  8. Shapira, Zur & Venezia, Itzhak, 1992. "Size and frequency of prizes as determinants of the demand for lotteries," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(2), pages 307-318, July.
  9. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-19, Fall.
  10. Gulley, O. David & Scott, Frank A. Jr., 1993. "The Demand for Wagering on State-Operated Lotto Games," National Tax Journal, National Tax Association, vol. 46(1), pages 13-22, March.
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