A lottery is a form of gambling wherein prizes are allocated by chance. Prizes can be monetary or non-monetary. Examples of monetary prizes include housing units in a subsidized housing block or kindergarten placements at a reputable public school. A less common but no less legitimate form of a lottery is the financial lottery, where participants pay for a ticket, select a group of numbers (or have machines randomly spit them out), and win prizes if enough of their number match those randomly drawn by a machine.

In general, the purchase of a lottery ticket is a rational choice for an individual if the entertainment value of winning the prize outweighs the disutility of losing money. However, there are several critical issues that should be considered prior to purchasing a lottery ticket:

Government at any level has difficulty managing an activity from which it profits. Lotteries present special challenges as they are not as transparent as a regular tax and tend to attract specific constituencies that must be managed. These can include convenience store owners (whose revenues from lottery sales provide a vital boost to their bottom line); suppliers of lottery products; teachers in states where lottery funds are earmarked for education; and state legislators who become accustomed to the relatively painless revenue stream.

Despite these complexities, the overall structure of a state lottery is fairly consistent across states. The state first legislates a monopoly for itself (or in some cases, licenses a private firm in return for a share of the profits); establishes a public corporation to run the lottery or creates a state agency with responsibility for its operations; and begins operations with a modest number of relatively simple games. Then, due to constant pressure for additional revenue, the lottery progressively expands its offerings.

In order for a lottery to operate successfully, it must have at least three basic elements:

1. a system for recording the identity of bettors and the amounts staked; 2. a process for selecting a subset of the population from which prizes are allocated; and 3. a set of rules governing the frequency and size of the prizes. A fifth requirement, which is not strictly a part of the lotteries’ mechanics but relates to how the lottery is organized, is also important. This includes how the lottery is promoted and managed.

Lotteries have been around for centuries and are an essential tool in some societies. They are a convenient way to raise funds for everything from town fortifications to welfare programs. Probably the first recorded lotteries to award prizes in the form of money were held in the Low Countries during the 15th century. Various towns raised funds for walls and town fortifications by holding public lotteries, and records from Ghent, Utrecht, and Bruges indicate that such events may have been much older. The modern era of state-sponsored lotteries began with New Hampshire in 1964. Today, 37 states and the District of Columbia have lotteries.