The lottery jackpot is the amount of money that is available to be won in a given drawing. The jackpot grows until someone wins, and after that win, the prize pool resets at a smaller amount. This cycle continues, until the jackpot reaches an apparently eye-popping number, which is then reported on television and draws widespread attention and sales. This is the result of two simple facts: Lotteries drive sales by advertising their high jackpots, and people have a hard time understanding how rare it is to win.
Humans are good at developing an intuitive sense of risk within their own experience, but those skills don’t translate to the large scope of a lottery prize, Matheson says. “Human beings just fundamentally have a very, very difficult time understanding how rare things are,” he says. This misunderstanding, Matheson says, is what allows lottery prizes to grow so large.
When someone does win, they can choose to receive the prize as an annuity, paid in 30 graduated payments over 29 years or a lump sum payment, which is what most winners opt for. An annuity also requires that federal and state taxes be deducted, which will reduce the amount that is ultimately received.
The best way for lottery winners to ensure they are able to keep as much of their prize as possible is to protect their ticket and limit who they tell, Matheson says. She recommends that lottery winners put together a team of professionals, including an attorney, accountant and financial planner, who can help them weigh their options.