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You have a dollar and a dream.
Should you buy stock? It's just a dollar. Plunk it down on the roulette wheel? Horrors no! That'd be gambling. Leave it in your pocket? It's burning a hole.
So, like millions of other Americans each day, you wisely invest it in the lottery, where you have the chance to win hundreds of millions of dollars without so much as breaking a sweat.
State lottery games have exploded in popularity in the past two decades and are now legal in 40 U.S. states, plus the District of Columbia. States love the games because they raise funds for everything from education and natural resources management to prison construction and general use, while allowing politicians to say with straight faces that they aren't raising taxes.
And despite the overwhelming odds against winning, the public loves the games even more. Local newscasts often report about the huge numbers of ordinary folks lining up to buy tickets when multi-state jackpots reach into a stratospheric $300 million-plus. One such lottery, the Mega Millions, available in 12 states including California and New York, offers players a 1-in-135 million chance that their $1 bets will hit the big payoff. Unbeknownst to most ticket buyers, the house keeps half the sales.
Don Catlin, a retired University of Massachusetts math professor who now provides advice to casinos, explains that this huge house edge for the lottery illustrates why it is such a bad investment. The edge is what the game operator keeps instead of returning the money to winners in the form of prizes. In other words, it's the percentage of total dollars bet that the states keep.
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Why we bother
The house edge is the easiest way to compare different lotteries and other games to each other, to decide which is the better "investment," for lack of a better word, Catlin says. And the comparisons are stark.Casino games may seem riskier than lottery tickets, but they certainly leave less for the house. Slot machines have house edges that vary from 0% to 20%, by Catlin's calculations, and the house edge for roulette is 5.28%. For three-card poker, it's 2%. In blackjack, depending how a person plays, it's between 1% and less than zero (meaning the player actually stands a chance at eliminating the house edge). Even horse racing has a lower house edge, 15% to 17%.
In contrast, the house edge for a typical lottery is more like 50%, Catlin says.
"The lottery is selling dreams, the kind of dreams not offered by the other games," Catlin explains in his book, "Lottery Book: The Truth Behind the Numbers." "When a player buys that lotto ticket, the period of suspense is long enough that they can hold that potential windfall in their hand and dream about all of the things that they are going to do if their lucky day arrives."
In other words, consumers are willing to forgo a huge chunk of payoff for the chance to win a life-altering jackpot.
| State | House edge | State | House edge |
|---|---|---|---|
28.10% | 38.50% | ||
35.30% | 38.80% | ||
35.80% | 39.00% | ||
37.00% | 39.20% | ||
38.00% | 40.70% |
This article was reported and written by Liz Moyer for Forbes.com.
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