For just $2, lottery players have the chance to make life-changing sums of money in an instant. This enticing proposition has turned even skeptics into hopeful believers. But despite the headline-grabbing jackpots, the likelihood of winning is actually very low. This is because human brains have a hard time understanding risk when it involves events that are very rare, as is the case of winning a lottery jackpot. It’s a phenomenon known as availability heuristic, where people make judgments about the likelihood of an event based on how easily that event comes to mind.
This is a big reason why lottery jackpots have become so astronomically large over the past decade. A few key factors are behind this trend. First, interest rates have spiked and taken lottery prize totals along for the ride. But the biggest change has been in how jackpots are advertised. Traditionally, lotteries offer annuity prizes, which give winners a series of annual payments for three decades. This method encourages frequent buying, but it means that if no one wins on a given drawing, the prize rolls over to the next week’s draw.
In order to prevent this, lotteries have gradually made jackpots harder to win. They have done this by making it harder to hit the bonus round, which doubles the prize amount. Winners can also choose to take a lump sum rather than annuity payments, which has tax implications. If they opt for the lump sum, the IRS will withhold 24% of the total amount, and if they win a large jackpot, they could be hit by top federal income taxes of 37%.