Jacking Up the Jackpot: Are Lotto Consumers Fooled by Annuity Payments?

Victor A. Matheson · Kent R. Grote

8 citations0/0 files storedPublic Finance Review

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Decision-Making and Behavioral Economics Economic and Fiscal Studies Financial Literacy, Pension, Retirement Analysis

Abstract

State lotteries typically pay lotto jackpot winners with annuity payments over a 20- to 30-year period. Because lottery associations advertise the jackpot to be the nominal sum of these payments, lottery associations can increase the size of the advertised jackpot simply by increasing the annuity length. Because ticket sales increase with the size of the advertised jackpot, longer annuity lengths should lead to higher ticket sales. The results suggest that lotto players are not fooled by this sleight of hand so that lottery associations cannot increase revenues by artificially inflating the advertised jackpot in this manner.

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1992Size and frequency of prizes as determinants of the demand for lotteries

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2019Modelling demand for lotto using a novel method of correcting for endogeneity

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