Wednesday, August 6, 2008

lottery tickets and lucky stores

Jonathan Guryan (Chicago) and Melissa Kearney (Maryland) point out that stores that sell a large-prize winning lottery tickets experience a significant upturn in lottery sales in the following weeks. They show that this upturn is largest in poorer areas. Why is this? The authors test two explanations. First, having a lottery winner in the local area may help advertise the lottery, which could increase demand for tickets. Second, people may believe in the "lucky-store effect".

They find evidence in support of the lucky-store effect and not in support of the advertising story. Because lottery winners are determined randomly, such a lucky store effect does not exist, and their paper provides evidence of irrational behavior.

The paper was published in the AER. Gambling at Lucky Stores

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