Which theory explains the behavior of purchasing lottery tickets?

The behavior of purchasing lottery tickets can be best explained by utility theory. This theory suggests that individuals make decisions based on the potential utility or satisfaction they derive from outcomes rather than solely on the expected monetary value. When it comes to lottery tickets, people often buy them not just for the possibility of winning a substantial cash prize but for the excitement and anticipation associated with playing, which provides a form of utility.

This excitement can lead individuals to overvalue the small probability of winning, making the purchase seem worthwhile despite the high odds against winning. Utility theory accounts for this behavior by incorporating concepts of risk preferences and how people perceive and derive satisfaction from different outcomes, even if they are statistically unfavorable.

In contrast, while risk theory deals with the perception of risk and how individuals manage potential losses and gains, it does not fully capture the reasons behind the emotional and psychological motivations for buying lottery tickets. Human capital theory focuses on the economic value of education and skills, which is not directly relevant to the behavior of purchasing a lottery ticket. Tournament theory mainly relates to competition in organizations and workplace compensation strategies, making it an inappropriate framework for understanding the lottery ticket purchase behavior.