Do Lottery Payments Induce Savings Behavior? Evidence from the Lab (WP-13-17)
Emel Filiz-Ozbay, Jonathan Guryan, Kyle Hyndman, Melissa Kearney, Erkut 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, the researchers 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. The researchers use the results of the experiment to structurally estimate the parameters of the decision problem governing time preference, risk aversion, and probability weighting. They employ the parameter estimates in a series of policy simulations that compare the relative effectiveness of PLS products as compared to standard savings products.