Which optimal design for lottery linked deposit
Lottery-linked deposit accounts (LLDAs) are financial assets that provide an interest rate determined by a lottery. These accounts that combine savings and lot- tery have become very popular in recent years and in a number of countries (Guillen and Tschoegel). However, their existence cannot be explained in the framework of the expected utility model. Their popularity can only be understood in light of behavioral ?nance studies, especially if individual preferences are described by Kahneman and Tversky?s cumulative prospect theory (1992). Actually, this theory provides a good explanation for the emergence of these deposit accounts by integrating simultaneously risk-averse and risk-seeking behaviors. In this paper, we propose a behavioral analysis of these financial assets by assuming that investors individuals preferences obey cumulative prospect theory. We study how the structure of prizes of the LLDAs should be framed to appeal to and attract many investors.Our aim is thus to determine the optimal design of these financial assets.
|Date of creation:||May 2007|
|Publication status:||Published by: ULB, DULBEA|
|Contact details of provider:|| Web page: http://difusion.ulb.ac.be|
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- Mauro Guillén & Adrian Tschoegl, 2002.
"Banking on Gambling: Banks and Lottery-Linked Deposit Accounts,"
Journal of Financial Services Research,
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