Kadir Atalay, Fayzan Bakhtiar, Stephen Cheung, and Robert Slonim, “Savings and Prize-Linked Savings Accounts [pdf].” Journal of Economic Behavior & Organization 107, Part A: 86-106, November 2014.
• Lotteries are popular in the US, and poorer households tend to spend a relatively larger share of their income on lotteries.
• A prize-linked savings (PLS) account is one that enters savers in a lottery, while protecting the principal, the amount of funds deposited by savers. The prize for the lottery typically is financed by paying lower interest on savings than would be paid in the absence of a lottery. It is as if a portion of all interest payments are confiscated and turned into a prize that goes to just one of the savers; the lottery usually features a probability of winning proportional to a saver’s share in overall deposits.
• PLS accounts are common in some countries, but essentially illegal in the US due to anti-gambling laws. The experiments described in this article aim to determine if US residents would find PLS accounts attractive, and whether PLS accounts would raise total savings (as opposed to just diverting savings from standard savings accounts).
• The experiments are web-based. Participants are asked about how they would allocate $100 between cash (to be received in 2 weeks’ time); standard lottery tickets (not a PLS); and standard savings (available in 10 weeks). The participants receive some recompense but not, for the most part, the actual results of their investment decisions – the starting $100 (largely) is imaginary. Later, they repeat their choices, with a PLS as an additional option.
• The experimental results suggest that the introduction of PLS accounts would increase total savings markedly. Further, much of the money invested in PLS accounts would be drawn from funds that otherwise would have gone to purchasing standard lottery tickets. These effects are particularly pronounced among lower-income people and those with little savings.
No comments:
Post a Comment