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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.

Suggested Citation

  • Scott, Frank A, Jr & Gulley, O David, 1995. "Testing for Efficiency in Lotto Markets," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 175-188, April.
  • Handle: RePEc:oup:ecinqu:v:33:y:1995:i:2:p:175-88
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Kent Grote & Victor Matheson, 2007. "Examining the 'Halo Effect' in lotto games," Applied Economics Letters, Taylor & Francis Journals, pages 307-310.
    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. 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.
    8. Kent Grote & Victor Matheson, 2006. "Dueling Jackpots: Are Competing Lotto Games Complements or Substitutes?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(1), pages 85-100, March.
    9. 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.
    10. 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.
    11. 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.
    12. repec:spr:italej:v:3:y:2017:i:1:d:10.1007_s40797-016-0043-x is not listed on IDEAS
    13. Jaume García & Levi Pérez & Plácido Rodríguez, 2011. "Guessing Who Wins or Predicting the Exact Score: Does it Make Any Difference in Terms of the Demand for Football Pools?," Chapters,in: Contemporary Issues in Sports Economics, chapter 7 Edward Elgar Publishing.
    14. 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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