HISTORY OF LOTTERIES

THE ENGLISH LOTTERIES: 1566 - 1826

Although it is more than likely that the English first experimented with raffles and similar games of chance, the first recorded official lottery was chartered by Queen Elizabeth I, in the year 1566, and was drawn in 1569. This lottery was designed to raise money for the "reparation of the havens and strength of the Realme, and towardes such other publique good workes." Each ticket holder won a prize, and the total value of the prizes equalled the money raised. Thus, the lottery money received was a loan to the government during the three years tickets were sold. In later years, the government sold the lottery ticket rights to brokers, who in turn hired agents and runners to sell them. These brokers eventually became the modern day stockbrokers for various commercial ventures. Many private lotteries were held, including raising money for The Virginia Company of London to support its settlement in America at Jamestown. The English State Lottery ran from 1694 until 1826. Thus, the English lotteries ran for over two hundred and fifty years, until the government under constant pressure from the opposition in parliament declared a final lottery in 1826. This lottery was held up to ridicule by contemporary commentators as "the last struggle of the speculators on public credulity for popularity to their last dying lottery.

Lotteries are most often run by governments or local states and are sometimes described as a regressive tax, since those most likely to buy tickets will typically be the less affluent members of a society. The astronomically high odds against winning have also led to the epithets of a "tax on stupidity", "math tax" or the oxymoron "voluntary tax" (playing the lottery is voluntary; taxes are not). They are intended to suggest that lotteries are governmental revenue-raising mechanisms that will attract only those consumers who fail to see that the game is a very bad deal. Indeed, the desire of lottery operators to guarantee themselves a profit requires that an average lottery ticket be worth substantially less than what it costs to buy. After taking into account the present value of the lottery prize as a single lump sum cash payment, the impact of any taxes that might apply, and the likelihood of having to share the prize with other winners, it is not uncommon to find that a ticket for a typical major lottery is worth less than one third of its purchase price.

Lotteries come in only one format. The prize can be fixed cash or goods. In this format there is risk to the organizer if insufficient tickets are sold. The prize can be a fixed percentage of the receipts. A popular form of this is the "50-50" draw where the organizers promise that the prize will be 50% of the revenue. The prize may be guaranteed to be unique where each ticket sold has a unique number. Many recent lotteries allow purchasers to select the numbers on the lottery ticket resulting in the possibility of multiple winners.

The fact that lotteries are commonly played leads to some contradictions against standard models of economic rationality. However, the expectations of some players may not be to win the game, but to experience the thrill and indulge in a fantasy of possibly becoming wealthy. Even ignoring the thrill factor, there is the theoretical possibility that the purchase of a lottery ticket could represent a gain in expected utility, even though it represents a loss in expected monetary value, thus making the purchase a rational decision. Insurance, for instance, represents negative expected monetary value but is not considered to be a tax on stupidity because it is generally believed to deliver positive expected utility to the individual.

Lottery tickets are usually scanned in large numbers, using marksenSe-technology. With today's computer performance, it takes less than one second to check if a particular combination was picked up by anyone, even for lotteries like Euromillions or MegaMillions.