When Saving is Gambling

69 Pages Posted: 1 Nov 2014 Last revised: 10 Mar 2020

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Date Written: February 13, 2017

Abstract

Prize-linked savings (PLS) accounts — which allocate interest using lottery payments rather than fixed interest — attempt to encourage savings by appealing to households’ gambling preferences. I introduce new data on casino cash withdrawals to measure gambling, and examine how individual gambling expenditures respond to the introduction of PLS in Nebraska using a difference-in-differences design. After PLS is introduced, individuals who live in counties that offer PLS reduce gambling by at least 3% more than unaffected individuals. The substitution effect is stronger in low-frills gambling environments, which most resemble PLS, indicating that these accounts fulfill the desire to gamble.

Keywords: household finance, prize linked savings, gambling markets, casino gambling, lottery

JEL Classification: D18, D14, L83

Suggested Citation

Cookson, J. Anthony, When Saving is Gambling (February 13, 2017). Finance Down Under 2015 Building on the Best from the Cellars of Finance Paper, Journal of Financial Economics (JFE), 129 (1), July 2018, pp. 24-45., Available at SSRN: https://ssrn.com/abstract=2517126 or http://dx.doi.org/10.2139/ssrn.2517126

J. Anthony Cookson (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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