What is a Lottery Jackpot?

A lottery jackpot is a large amount of money that is won through playing the lottery. It is usually advertised as an annuity payment that winners receive over decades, but they can choose to take a lump sum payout. The term jackpot is also used in financial circles to describe a large unexpected win that occurs when investment returns exceed expectations or an investor cashes out a position with substantial profit.

When the lottery advertises a jackpot, people will often daydream about what they would do if they won, says Eric Storch, professor and vice chair of the Menninger Department of Psychiatry and Behavioral Sciences at Baylor College of Medicine. It’s the “availability heuristic,” a mental shortcut that causes us to make judgments about how likely something is to happen based on how readily it comes to mind. People who see pictures of previous lottery winners holding their giant checks can instantly imagine themselves doing the same thing.

The New York Lottery offers an annuity option for jackpot winnings, but most winners opt to receive the one-time lump sum payment. When they do, the New York Lottery asks seven bond brokers to quote a package of bonds that will pay future annual payments. It then buys the bonds at the best price from the brokers and puts them in an investment account. The New York Lottery pays the winner the sum that equals the advertised jackpot minus income taxes withheld from the lump-sum payments.