Promise of Prizes Helps People Save

Khadeeja Safdar:

Can the lure of gambling be used to help people save?

A new working paper published by the National Bureau of Economic Research explores the possibility of using lotteries to induce savings behavior. The concept is called a prize-linked savings (PLS) account, in which holders have the chance of winning cash or other kinds of prizes for contributing money.

The authors of the paper -- Emel Filiz-Ozbay, Jonathan Guryan, Kyle Hyndman, Melissa Schettini Kearney and Erkut Y. Ozbay -- conducted a controlled experiment with 96 University of Marylandstudents to compare the success of a PLS account to that of a standard interest-bearing account. They found that participants were more likely to save when offered the possibility of winning a prize. "To the best of our knowledge, this is the first evidence showing that PLS products are more effective at inducing savings as compared to a standard interest bearing account offering the same expected return," write the authors.

Posted by Jim Zellmer at June 29, 2013 12:05 AM
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