Lottery is an organized game in which winnings are determined by a random drawing. Though commonly associated with gambling, lotteries are used in a variety of other decision-making scenarios, from sports team drafts to the allocation of limited medical treatments. Regardless of their context, they all involve the risk-reward dynamic that draws people to invest a small amount for the chance to win a large sum of money.

Despite the low odds of winning, lottery participants find a value in the experience that goes beyond mere entertainment. Psychologist Fern Kazlow argues that the lottery can be a form of psychological self-soothing, and it allows ticket holders to fantasize about what they would do with their prize money if they won. She believes that this factor explains why people continue to buy tickets even when it is clear that they are unlikely to win.

However, the purchase of lottery tickets cannot be accounted for by decision models based on expected value maximization. A lottery ticket costs more than it pays out, so a person who tries to maximize expected value would not buy tickets. Instead, the value people place on the ticket purchase is likely to be a combination of its entertainment and fantasy value, plus any non-monetary benefits that come with it.

Americans spend $80 billion a year on lottery tickets – that’s over $600 per household! That money could be better spent building an emergency fund, paying off debt or saving for a retirement account.