Do Lottery Payments Induce Savings Behavior: Evidence from the Lab

41 Pages Posted: 18 Jun 2013

See all articles by Emel Filiz-Ozbay

Emel Filiz-Ozbay

University of Maryland - Economics

Jonathan Guryan

Northwestern University - Human Development and Social Policy (HDSP) Program; National Bureau of Economic Research (NBER)

Kyle B. Hyndman

University of Texas at Dallas

Melissa S. Kearney

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Erkut Ozbay

University of Maryland

Date Written: June 2013

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.

Suggested Citation

Filiz-Ozbay, Emel and Guryan, Jonathan and Hyndman, Kyle B. and Kearney, Melissa S. and Ozbay, Erkut, Do Lottery Payments Induce Savings Behavior: Evidence from the Lab (June 2013). NBER Working Paper No. w19130, Available at SSRN: https://ssrn.com/abstract=2280981

Emel Filiz-Ozbay (Contact Author)

University of Maryland - Economics ( email )

United States

Jonathan Guryan

Northwestern University - Human Development and Social Policy (HDSP) Program ( email )

2046 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kyle B. Hyndman

University of Texas at Dallas ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Melissa S. Kearney

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Erkut Ozbay

University of Maryland ( email )

College Park
No Address Available

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