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Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts

Author

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  • Shawn Cole

    (Finance Department, Harvard Business School, Boston, Massachusetts 02163; National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Benjamin Iverson

    (Finance Department, Marriott School of Business, Brigham Young University, Provo, Utah 84602)

  • Peter Tufano

    (Finance Department, Said Business School, Oxford University, Oxford OX1 1HP, United Kingdom)

Abstract

This paper studies the adoption and impact of prize-linked savings (PLS) accounts, which offer lottery-like payouts to individual account holders in lieu of interest. Using microlevel data from a bank in South Africa, we show that PLS is attractive to a broad group of individuals, with financially constrained individuals and those with no other deposit accounts particularly likely to participate. Individuals who choose to use PLS increase their total savings on average by 1% of annual income. Exploiting the random assignment of prizes, we present causal evidence that PLS substitutes for lottery gambling but is a complement to standard savings.

Suggested Citation

  • Shawn Cole & Benjamin Iverson & Peter Tufano, 2022. "Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts," Management Science, INFORMS, vol. 68(5), pages 3282-3308, May.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:5:p:3282-3308
    DOI: 10.1287/mnsc.2021.4047
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