Size and frequency of prizes as determinants of the demand for lotteries

Abstract

Three variables were assumed to characterize lotteries: prizes, probability of winning, and the cost of a ticket. Two studies were conducted: The first study utilized data from the Israeli “Lotto” system for a period of 60 months. In the second study subjects indicated their preferences among different problem sets that consisted of hypothetical lotteries which were constructed so as to resemble real lotteries. The results of both studies indicate that the size of the first prize as well as the number of small prizes had the major effect on the demand for lotteries. The results are discussed in terms of classical utility theory and alternative theories that emphasize the role of attention to a few key aspects rather than moments of the distribution of outcomes.

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