The lottery is an integral part of American life, a chance to fantasize about winning a fortune for the cost of a couple bucks. But what is the real impact of this popular activity on state budgets, and is it worth the cost to taxpayers who might otherwise spend their money elsewhere?

Historically, states have used lotteries to raise revenue for a wide variety of public uses. In fact, one of the founding fathers – Benjamin Franklin – ran a lottery to fund cannons for defense of Philadelphia in the American Revolution, and John Hancock ran a lottery to help build Boston’s Faneuil Hall. Lottery revenues have long been a favorite alternative to direct taxation.

While most people do not understand the mathematics behind lottery games, they still purchase tickets based on expected utility maximization. This means that they prefer the small probability of a big win to the large risk of losing a little. And even though the odds are very low, lottery players as a group contribute billions of dollars to government receipts that they could have spent on a home, retirement, or college tuition.

In an era where many Americans are anti-tax, the popularity of lotteries is a troubling development. While state governments promote them as a painless source of revenue, they are actually a form of government-sponsored gambling. And because they are a form of gambling, they must be regulated. That requires a significant amount of time and effort, which eats into the resources that can be allocated to other priorities.