About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1994 Wis. L. Rev. 71 (1994)
Why People Play Lotteries and Why It Matters

handle is hein.journals/wlr1994 and id is 87 raw text is: WHY PEOPLE PLAY LOTTERIES AND WHY IT MATTERS EDWARD J. MCCAFFERY' This Article is motivated by a puzzle. Lottery play is extremely common. Yet such play is inconsistent with standard economic theories of the consumer, which feature rationality and risk aversion. Faced with the puzzle, theorists have generally tried to save risk aversion at the expense of rationality. Three common explanations for the prevalence of lottery play emerge: that people are ignorant; that they are irrational; and that they find a consumption value in playing the lottery. But on deeper investigation none of these theories is ultimately satisfying. A more promising explanation upholds the rationality of consumers at the expense of risk aversion. This explanation turns on the idea of indivisibilities in consumption expenditures, and looks more closely at individual preference structures and the possibility that consumers operate under multiple utility functions. This emergent, rationally-based theory holds out more promise for lottery reform than do the more traditional explanations. Further, the new theory gives insights into certain important institutional features of society. Most important, the new theory involves a movement toward a better, more respectful theory of the consumer, one that can inform a wide range of policy analysis. I. Setting the Stage: Theory and Practice ............... A. Theory: People Should Not Play Lotteries .......... B. Practice: People Play Lotteries ................ II. Explanations Consistent With Risk Aversion .............................. A. Ignorance and Cognitive Error ................ B. Irrationality ............................. C. Consumption Value of Play .................... Ill. The Rationality of Lottery Play .................... A. Elevation Effects ......................... B. Indivisibility Arguments ..................... C. Impediments to Savings .................... 1. Limited Alternatives ................... 2. Social Impediments .................... 3. Self-Binding Constraints .................. 75 75 79 80 80 86 89 93 94 99 105 107 108 * Visiting Professor of Law, Yale Law School (1993-1994); Associate Professor of Law, University of Southern California Law Center. I owe great thanks for scholarly input and advice to Scott Altman, Philip Cook, Dick Craswell, John Finnis, George Fletcher, Tom Griffith, Jean Hampton, Barbara Herman, Greg Keating, Michael Knoll, Marty Levine, Joseph Raz, Robert Rychlak, Elyn Saks, Matt Spitzer, and Jeff Strnad, and to all the participants at the 1992 Oxford/USC Institute of Legal Theory, where an earlier draft of this Article was presented. I also owe thanks to Doug Roseman for excellent research assistance.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most