Working Paper: NBER ID: w19130
Authors: Emel Filiz-Ozbay; Jonathan Guryan; Kyle Hyndman; Melissa Schettini Kearney; Erkut Y. Ozbay
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.
Keywords: Prize Linked Savings; Lotteries; Risk Preferences; Prelec Weighting
JEL Codes: D03; D14; D81; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demographic factors (J11) | effect of PLS option on payment deferral (J33) |
| 0.01 probability of large prize from PLS (C25) | savings (D14) |
| PLS option (G13) | payment deferral rates (E43) |