Talk by Erkut Ozbay

January 10, 2014
3:30 pm - 5:00 pm
Arps Hall, Room 437

Date Range
2014-01-10 15:30:00 2014-01-10 17:00:00 Talk by Erkut Ozbay Do Lottery Payments Induce Savings Behavior? Evidence from the LabAbstract: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 _nd 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 Arps Hall, Room 437 America/New_York public

Do Lottery Payments Induce Savings Behavior? Evidence from the Lab

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 _nd 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