In expected utility theory, a lottery is a discrete distribution of probability on a set of states of nature. The elements of a lottery correspond to the probabilities that each of the states of nature will occur, (e.g. Rain: 0.70, No Rain: 0.30). Much of the theoretical analysis of choice under uncertainty involves characterizing the available choices in terms of lotteries.
In economics, individuals are assumed to rank lotteries according to a rational system of preferences, although it is now accepted that people make irrational choices systematically. Behavioral economics studies what happens in markets in which some of the agents display human complications and limitations.
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