Do Lottery Payments Induce Savings Behavior? Evidence from the Lab

Emel Filiz Ozbay, Jonathan Guryan, Kyle Hyndman, Melissa Kearney, and Erkut Y. Ozbay , Journal of Public Economics 126 , 1-24 , June 2015.

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 and selfreported lottery players. 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