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Do Lottery Payments Induce Savings Behavior: Evidence from the Lab

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  • Emel Filiz-Ozbay
  • Jonathan Guryan
  • Kyle Hyndman
  • Melissa Schettini Kearney
  • Erkut Y. Ozbay

Abstract

This paper presents the results of a laboratory experiment designed to investigate whether the option of a Prize Linked Savings (PLS) product alters the likelihood that subjects choose to delay payment. By comparing PLS and standard savings products in a controlled way, we find strong evidence that a PLS payment option leads to greater rates of payment deferral than does a straightforward interest payment option of the same expected value. The appeal of the PLS option is strongest among men, self-reported lottery players, and subjects with low bank account balances. We use the results of our experiment to structurally estimate the parameters of the decision problem governing time preference, risk aversion, and probability weighting. We employ the parameter estimates in a series of policy simulations that compare the relative effectiveness of PLS products as compared to standard savings products.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19130.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19130

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Cited by:
  1. Brigitte C. Madrian, 2014. "Applying Insights from Behavioral Economics to Policy Design," NBER Working Papers 20318, National Bureau of Economic Research, Inc.

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