IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Do Lottery Payments Induce Savings Behavior: Evidence from the Lab

Listed author(s):
  • Emel Filiz-Ozbay
  • Jonathan Guryan
  • Kyle Hyndman
  • Melissa Schettini Kearney
  • Erkut Y. Ozbay

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w19130.pdf
Download Restriction: no

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

as
in new window

Length:
Date of creation: Jun 2013
Publication status: published as Journal of Public Economics Volume 126, June 2015, Pages 1–24 Cover image Do lottery payments induce savings behavior? Evidence from the lab ☆ Emel Filiz-Ozbaya, Jonathan Guryanb, c, , , Kyle Hyndmand, Melissa Kearneya, c, Erkut Y. Ozbaya
Handle: RePEc:nbr:nberwo:19130
Note: LE PE
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Keith Coble & Jayson Lusk, 2010. "At the nexus of risk and time preferences: An experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 67-79, August.
  2. Keren, Gideon & Roelofsma, Peter, 1995. "Immediacy and Certainty in Intertemporal Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(3), pages 287-297, September.
  3. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  4. Marco Ottaviani & Peter Norman Sorensen, 2010. "Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 58-85, February.
  5. Steffen Andersen & Glenn W. Harrison & Morten Lau & Elisabet E. Rutstroem, 2011. "Intertemporal Utility and Correlation Aversion," Working Papers 2011_03, Durham University Business School.
  6. James Andreoni & Charles Sprenger, 2010. "Estimating Time Preferences from Convex Budgets," NBER Working Papers 16347, National Bureau of Economic Research, Inc.
  7. Conlisk, John, 1993. "The Utility of Gambling," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 255-275, June.
  8. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, 05.
  9. Atalay, Kadir & Bakhtiar, Fayzan & Cheung, Stephen & Slonim, Robert, 2014. "Savings and prize-linked savings accounts," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 86-106.
  10. Steffen Andersen & Glenn W. Harrison & Morten Lau & Elisabet E. Rutstroem, 2011. "Discounting Behavior: A Reconsideration," Working Papers 2011_01, Durham University Business School.
  11. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
  12. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?," NBER Working Papers 15923, National Bureau of Economic Research, Inc.
  13. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2.
  14. Annamaria Lusardi & Daniel Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," CeRP Working Papers 116, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  15. Susan K. Laury & Melayne Morgan McInnes & J. Todd Swarthout & Erica Von Nessen, 2011. "Avoiding the Curves: Direct Elicitation of Time Preferences," Experimental Economics Center Working Paper Series 2011-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2012.
  16. Martin Ahlbrecht & Martin Weber, 1997. "Preference for gradual resolution of uncertainty," Theory and Decision, Springer, vol. 43(2), pages 167-185, September.
  17. Paul J. Healy & Yaron Azrieli & Christopher P. Chambers, 2016. "Incentives in Experiments: A Theoretical Analysis," Working Papers 16-03, Ohio State University, Department of Economics.
  18. Adam Booij & Bernard Praag & Gijs Kuilen, 2010. "A parametric analysis of prospect theory’s functionals for the general population," Theory and Decision, Springer, vol. 68(1), pages 115-148, February.
  19. Patrick Roger, 2009. "Testing alternative theories of financial decision making: an experimental study with lottery bonds," Working Papers of LaRGE Research Center 2009-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  20. Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer;Economic Science Association, vol. 1(2), pages 115-131, September.
  21. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
  22. Bruno Jullien & Bernard Salanié, 1997. "Estimating Preferences under Risk : The Case of Racetrack Bettors," Working Papers 97-39, Centre de Recherche en Economie et Statistique.
  23. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
  24. Barseghyan, Levon & Molinari, Francesca & O'Donoghue, Ted & Teitelbaum, Joshua C., 2011. "The Nature of Risk Preferences: Evidence from Insurance Choices," Working Papers 11-03, Cornell University, Center for Analytic Economics.
  25. Chew, Soo Hong & Ho, Joanna L, 1994. "Hope: An Empirical Study of Attitude toward the Timing of Uncertainty Resolution," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 267-288, May.
  26. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," SOI - Working Papers 0705, Socioeconomic Institute - University of Zurich, revised Jul 2007.
  27. Kearney, Melissa Schettini, 2005. "State lotteries and consumer behavior," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2269-2299, December.
  28. Lisa Anderson & Sarah Stafford, 2009. "Individual decision-making experiments with risk and intertemporal choice," Journal of Risk and Uncertainty, Springer, vol. 38(1), pages 51-72, February.
  29. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  30. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
  31. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  32. Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-473, March.
  33. Dermot Gately, 1980. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 373-374, Spring.
  34. Helga Fehr-Duda & Manuele Gennaro & Renate Schubert, 2006. "Gender, Financial Risk, and Probability Weights," Theory and Decision, Springer, vol. 60(2), pages 283-313, 05.
  35. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  36. Nicholas Barberis & Ming Huang, 2007. "Stocks as Lotteries: The Implications of Probability Weighting for Security Prices," NBER Working Papers 12936, National Bureau of Economic Research, Inc.
  37. George Wu & Richard Gonzalez, 1996. "Curvature of the Probability Weighting Function," Management Science, INFORMS, vol. 42(12), pages 1676-1690, December.
  38. Chetty, Raj & Friedman, John N. & Leth-Peterson, Soren & Nielsen, Torben Heien & Olsen, Tore, 2013. "Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark," Working Paper Series rwp13-002, Harvard University, John F. Kennedy School of Government.
  39. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  40. Glenn Harrison & J. Swarthout, 2014. "Experimental payment protocols and the Bipolar Behaviorist," Theory and Decision, Springer, vol. 77(3), pages 423-438, October.
  41. Stevenson, Mary Kay, 1992. "The impact of temporal context and risk on the judged value of future outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(3), pages 455-491, August.
  42. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  43. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
  44. Todd Mitton & Keith Vorkink, 2007. "Equilibrium Underdiversification and the Preference for Skewness," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1255-1288.
  45. Martin Ahlbrecht & Martin Weber, 1997. "An Empirical Study on Intertemporal Decision Making Under Risk," Management Science, INFORMS, vol. 43(6), pages 813-826, June.
  46. Justin Sydnor, 2010. "(Over)insuring Modest Risks," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 177-199, October.
  47. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  48. Marco Ottaviani & Peter Norman Sørensen, 2009. "Surprised by the Parimutuel Odds?," American Economic Review, American Economic Association, vol. 99(5), pages 2129-2134, December.
  49. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
  50. Benhabib, Jess & Bisin, Alberto & Schotter, Andrew, 2010. "Present-bias, quasi-hyperbolic discounting, and fixed costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 205-223, July.
  51. Melissa Schettini Kearney & Peter Tufano & Jonathan Guryan & Erik Hurst, 2010. "Making Savers Winners: An Overview of Prize-Linked Savings Products," NBER Working Papers 16433, National Bureau of Economic Research, Inc.
  52. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-474, June.
  53. Shlomo Benartzi & Richard Thaler, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19130. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.