Lottery is a popular method of raising funds for state and other public purposes. Virtually every state has legalized lotteries, and their popularity continues to increase. While the expansion of lottery games is a positive development, it raises important policy issues. Lotteries are generally perceived as a form of gambling, and as such, generate concerns about their effect on poor people and problem gamblers. The promotion of gambling also raises serious ethical questions, especially since most lotteries are run as a business whose primary function is to maximize profits through advertising.
Regardless of the specific games, all lotteries feature a common element: a pool of money (generally donated by participants) is used as prizes in a random drawing. The prize pool consists of a single large prize and many smaller prizes. The size of the prize pool is usually determined before tickets are sold and may be based on the amount of money collected by the promoter or on state taxes or other revenue.
In the case of public lotteries, prizes are often earmarked for a particular purpose. In colonial America, for example, lotteries were used to fund construction of roads, bridges, canals and churches. Benjamin Franklin even sponsored a lottery to raise funds for cannons to defend Philadelphia during the American Revolution. Lotteries were also used to help fund colleges, including Harvard, Dartmouth and Yale.
Lottery supporters argue that the monetary value of winnings exceeds the disutility of losing. The fact that lotteries are promoted by government agencies can make this argument more persuasive. However, studies show that the actual financial condition of a state government does not influence the decision to sponsor a lottery. The most significant factor appears to be whether the lottery proceeds are perceived as supporting a “public good” such as education.