Abstract. State‐sponsored lotteries are a lucrative source of revenue. Despite their low payout rates, lotteries are extremely popular, particularly among low‐income citizens. State officials laud the benefits of lottery proceeds and promote the fun and excitement of participation. This entertainment value is one explanation for lottery demand by the poor: individuals with lower incomes substitute lottery play for other entertainment. Alternatively, low‐income consumers may view lotteries as a convenient and otherwise rare opportunity for radically improving their standard of living. Bad times may cause desperation, and the desperate may turn to lotteries in an effort to escape hardship. This study tests these competing explanations. We examine lottery sales data from 39 states over 10 years and find a strong and positive relationship between sales and poverty rates. In contrast, we find no relationship between movie ticket sales, another inexpensive form of entertainment, and poverty rates.
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