My economist friend M. pointed out some time ago that the way lotteries build instant tickets embodies a doctrine about pricing. The doctrine expressed by most lotteries might be called “best deals for our most committed customers”- that is, the players who are willing to spend $20 per ticket get our most generous payouts. This doctrine tends to concentrate the business on a small and very avid player base. Most lotteries claim to want something different- a broad base of players, none of whom plays excessively. A pricing doctrine better suited to producing this result is called “pricing for penetration”. Have you ever heard of this in the lottery context? Neither had I when I published this article in NASPL Insights August 2013
Category: Prize Structures
the number and value of prizes in a game
What Does It Cost to Play the Lottery?
I have the good fortune to know M., an accomplished economist who also likes to play the lottery. From him, I have learned perspectives on the lottery enterprise that I have heard from no one else. One of the first things I learned is that to an economist, the cheapest games the lottery sells are the ones that cost the most to play. M also introduced me to the idea of “likely cost”, that is, for a certain intensity of play, how much money he expects to lose. These are key concepts for understanding the winning experience of players, and what it takes to keep them engaged while making money for the lottery. My first account of M and his teachings was published in NASPL Insights June 2013