Why?
The thing I linked to yesterday explained it well.
Eta: reddit here.
Warning: a bit of profanity.
Relevant section: This is from a random guy on the internet, so cmiiw.
Not a very good explanation, but he gets some parts right. The liquidity issue is somewhat significant - meaning if in fact you decide that the 2 options are truly worth the same amount to you mathematically, you only have full access in one of the scenarios.
The real reason is because the annuity is not necessarily competitive. You could easily argue that this type of annuity is not a good investment generally, but even if it was, you very well might be able to take the cash and buy a slightly better stream of income (or buy the same stream for less and hold the difference) if you preferred that method of payout. The states don't handle the annuities themselves, as that poster mentioned. They put these policies up for bid to the insurance companies who have annuity businesses. His 4.5% is actually totally off. Based on the $900 sum of annuity payments and $558 cash value numbers quoted on the Powerball website right now, the implicit rate of return on the annuity is 2.97% (assuming no built in fees or loads). Because it's not a completely open market, you're likely to do better actually shopping around for that very same annuity.