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 ..................

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*    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.

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