State Lottery Revenue: The Importance of Game Characteristics

Previous studies have found that lottery ticket sales are influenced by certain socioeconomic characteristics of the population. The authors extend the state lottery literature by examining how lottery game characteristics, such as the overall expected value, the top prize, and the total number of combinations, influence ticket sales after controlling for socioeconomic variables. They perform an empirical analysis on a unique set of data that include information for 135 online lottery games in the United States. The results show that ticket sales are significantly influenced by the size of the top prize and the odds of winning it, but ticket sales are not significantly affected by the expected value of the lower prizes. The out-of-sample predictive power of the model is then tested using a real-world example of changes to the prize and odds structure of PowerBall.