While it might seem that the lottery is a product of the modern culture that birthed Instagram and the Kardashians, the game has roots as old as America. According to Cohen, during the American Revolution Benjamin Franklin organized a lottery to raise funds for cannons to defend Philadelphia against the British. He succeeded, and lotteries became an established part of the country’s landscape even though they ran counter to Protestant proscriptions on gambling.

A lottery is any competition in which a prize is awarded to the winner based on a random event, whether it’s a drawing of numbers or a raffle of apartments in a new building. A lottery can also include a game of skill, like a golf tournament, but it must have an element of chance to be considered one.

There are a few essential components to lottery: a pool of prize money, a way to award prizes, and a mechanism for collecting stakes. Normally the pool is created by a group of agents who take in money paid for tickets, and pass it up through their hierarchy until the organization has “banked” enough to distribute to winners. A typical system deducts costs and profits from the pool, leaving a percentage for the winner.

Winners can choose to receive their prize as a lump sum or in an annuity. Lump sums are attractive because they provide instant financial freedom, but they require disciplined financial management to maintain wealth over time. An annuity, on the other hand, can be more tax-efficient but can leave winners exposed to sudden market fluctuations and unanticipated expenses.