The Odds of Winning a Lottery Jackpot


Lottery has been around for centuries, with a long history of use as everything from an amusement at dinner parties (tickets were distributed to guests during Saturnalian revelries and prizes included fancy items such as dinnerware) to divination and, in modern times, a way for states to raise money without risking public anger over higher taxes. As Steven Cohen writes in a new book, “Lotteries are budgetary miracles, allowing governments to make money appear out of thin air.”

In the early American colonies, lotteries were tangled up with slavery, with some prize money devoted to enslaved people, including one man who won a lottery and then used his winnings to buy his freedom. By the nineteen-seventies, however, our national obsession with the lottery was matched by a decline in financial security for most Americans: income inequality widened, pensions and health-care costs rose, and job stability fell.

Amid these challenges, state legislatures began casting about for solutions to their budgetary crises that would not enrage their increasingly anti-tax electorate. This is when lottery began to spread across the country. At first, legislators promoted the games as a kind of magic wand that would allow them to maintain services without raising taxes. They could even boast that the proceeds of the lottery would bring in hundreds of millions of dollars—as if it were easy to pull a rabbit out of a hat.

The lottery’s ubiquity is partly because of the irrational human impulse to gamble, but it’s also because the game is often pitched as a harmless hobby for middle-class families that has a pleasantly soothing effect on their lives. And it’s not just that middle-class families like to play; the poor also do. In fact, according to a recent study by the consumer finance company Bankrate, those who make more than fifty thousand dollars per year spend one percent of their income on tickets; those who make less spend thirteen percent.

What do these figures mean? How much is the average jackpot worth and how much are the odds of winning it? The answer is more complicated than you might think. The truth is that when a lottery advertises that it has a $1.765 billion jackpot, that sum does not sit in a vault waiting to be handed over to the winner. The jackpot is actually calculated based on what would be paid to someone if the prize pool were invested in an annuity that paid out in 30 annual payments—with a 5% yearly increase each year—over three decades.

So if you win the lottery, you will receive that first payment in 2023 and then 29 more annually for 30 years, after which the sum will become part of your estate. This might explain why many lottery players seem so convinced that the jackpots are ludicrously high and that they are in a unique position to take advantage of them. And it might explain why so many of them are wrong.