A competition based on chance, in which numbered tickets are sold and prizes are given to the holders of numbers drawn at random. Prizes can be anything from cash to goods, services, or even houses or cars. Lotteries can also be a means of raising money for the state or a charity.

The earliest lottery games were probably based on drawing lots to determine the distribution of property, as in the biblical story of Lot and his daughters (Genesis 13:11). In the 18th century, public lotteries were popular in America to raise funds for such things as building colleges. Benjamin Franklin sponsored a lottery in 1776 to try to finance the American Revolution, but it was unsuccessful. Lotteries became a major source of income in the early 19th century. They were a convenient way for state governments to generate revenue without raising taxes, especially during times of recession or inflation.

In modern times, most people use lotteries to play the financial lottery, in which they pay a small amount of money for the chance to win large amounts of money. Players choose a group of numbers or let machines do it for them, and the more of their numbers match the ones randomly selected by the machine, the higher the prize they can win. The prizes for winning the financial lottery are generated by ticket sales, and the more tickets sold, the larger the prize.

People who buy tickets in the financial lottery do so because they enjoy the thrill and fantasy of becoming wealthy, not because they want to maximize expected utility as defined by economic theory. Purchasing a lottery ticket requires an investment of time and energy that is not compensated in any other way, but some people feel it is worth the effort.

While state lotteries have gained wide acceptance as a way to raise money for a variety of public purposes, critics argue that they are inherently a form of gambling and should be limited or eliminated. The fact that they are run as businesses with the goal of maximizing revenues creates problems, including targeting poorer individuals, increasing opportunities for problem gamblers, and promoting addictive games. In an anti-tax era, many states have become dependent on lottery revenue, and they are constantly pressured to increase the amounts of money they collect.

The introduction of state lotteries has occurred in a manner that is not consistent with democratic principles, because it involves a transfer of authority from the legislature to the executive branch. This fragments the political process and creates the impression that lottery officials are making decisions with only their own interests in mind, not those of the general population. The development of lottery policy is a classic example of this, and few, if any, state lotteries have a clear, comprehensive public policy.