The Truth About Lottery Prizes

Every week, people spend billions of dollars on lottery tickets, holding out the sliver of hope that they might be the one to win. But the odds are very low, and the truth is that most people will never win. And that’s the beauty of the exercise: it forces people to confront how improbable winning really is.

Lottery prizes are generally much smaller than advertised, even after accounting for taxes. For example, when someone wins the Powerball jackpot, they typically get a lump sum payment of less than half of the advertised amount, after federal income taxes have been withheld. In addition, lottery winnings are usually subject to a series of withholdings, depending on the country.

A large part of the problem is that state lottery commissions play off of human psychology and are not above employing tactics similar to those of cigarette companies or video-game makers. Billboards that promise “instant riches” and images of winning tickets are designed to keep people buying and playing.

Lotteries are also a political tool, used by politicians who are fearful of raising taxes in an age of declining economic prosperity. Cohen writes that for many legislators, lotteries were a way to bring in hundreds of millions of dollars without the risk of being punished at the polls. They were “budgetary miracles, the chance for states to make revenue appear seemingly out of thin air.”