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Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention

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  • Burke, Jeremy

Abstract

We conduct the first field experiment examining whether prize-linked incentives can be effective in promoting debt reduction by randomizing access among 6,907 borrowers in a debt management plan. We find strong take-up of the program and that takers were timelier with repayment and paid off more debt. However, average treatment effect estimates for on-time payments, programmatic dropout, and debt levels (46.7 dollars, 95% CI = [−$132, $225], control mean = $11,558) are all precise zeros. Our results suggest that despite strong interest and positive correlations, prize-linked incentives may not modify debt repayment behavior and may simply attract individuals who are ex-ante likely to repay.

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  • Burke, Jeremy, 2021. "Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention," Journal of Public Economics, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:pubeco:v:204:y:2021:i:c:s0047272721001705
    DOI: 10.1016/j.jpubeco.2021.104534
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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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