Agent-Based Modeling of Lottery Markets

Abstract

The lottery market modeled in this study cannot be explained by the conventional rational expectation approach. Clarifying lottery market behaviors is a daunting task. We apply an agent-based computational modeling technique in which each agent is modeled as autonomous with his or her own perceptions and actions. The objective is to use three empirical observations in lottery markets ⎯ the halo effect or lottomania, conscious selection of betting numbers, and aversion to regrets ⎯ to examine the effects of the lottery takeout rate on its revenue. Initial results show the Laffer curve, which indicates the existence of an optimal lottery takeout rate or range. This finding provides some insights to the empirical averaged rate for the 25 lottery markets examined.