My husband pointed me to a Milwaukee Journal Sentinel article today that "exposes" the truth that the state lottery has a much lower payout in low-income zip codes than in high-income zip codes.  Is this a conspiracy against the poor?  No, at least not a direct one.  Luckily, I've been brushing up on my gambling economics knowledge.  In my email to the reporter, I explain that the answer to this conundrum is revealed in a paper by Melissa S. Kearney, "The Economic Winners and Losers of Legalized Gambling."  As I explained to the reporter in my email:

In this paper, she has empirical data to show that the reason that payouts are different over zip codes is that lower-income lottery players buy different lottery products than middle-income and higher-income players. For example, lower-income lottery players buy more "instant tickets." (38% of respondents in the lower-income brackets vs. 27% in the middle income and 19% in the higher income). Instant tickets have a much lower payout than jackpot lotteries. Higher-income respondents were more likely to play jackpot lotteries (56% v. 39% in the lower-income group), which have a much higher payout rate. In addition, wealthier players tend to buy lottery tickets when the jackpot is higher, which increases the expected value of the dollar spent. So, instant win tickets are much more regressive than jackpot lotteries, and low-jackpot lotteries are more regressive than high-jackpot lotteries.

If states want to make lotteries less regressive, they could phase out instant win tickets. However, these tickets are the most lucrative. Some states even have $20 or $30 instant scratch-off tickets.

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