The casting of lots for material rewards has a long history (including several instances in the Bible), although lotteries in the modern sense of the word didn’t appear until the 1500s. The first public lotteries to distribute prize money were conducted in 15th-century Burgundy and Flanders as ways for towns to raise funds for municipal repairs and help the poor. Francis I of France permitted the establishment of public lotteries in his kingdom after visiting Italy, where such games were common.
The purchase of lottery tickets cannot be justified by decision models based on expected value maximization. Purchasing a ticket costs more than it pays out, and the chance of winning a prize is entirely dependent on luck. However, if non-monetary values like entertainment and the fantasy of wealth are factored into the utility function, the purchase of lottery tickets can be considered rational.
A number of the founding fathers were big gamblers and used the lottery to finance a variety of projects, including building Boston’s Faneuil Hall and paving roads in Virginia over mountain passes, Matheson says. He cites the example of Denmark Vesey, an enslaved man in Charleston, South Carolina, who won the lottery and used the proceeds to buy his freedom. But the religious and moral sensibilities that spawned prohibition soon began to work against gambling of all forms, starting in the 1800s.
When you win a lottery prize, you have the option to take the lump sum or annuity payments. An annuity splits the prize into 30 annual installments, beginning with the initial payment when you win and continuing until your death or until all the payments are made.
