Behavioral Finance and Incentives — Lottery to make people save

This post belongs on the marketing blog — so clever.

WSJ: Using the Lottery Effect to Make People Save

But psychologists have long known that people tend to overestimate
the odds of rare events. Applying that behavioral insight, finance
professor Peter Tufano of Harvard Business School has devised a clever
program called "Save to Win." Launched earlier this year for members of
eight credit unions in Michigan, it is a cross between a certificate of
deposit and a raffle ticket. Members who put $25 or more into a Save to
Win one-year CD are entered into a monthly "savings raffle" for prizes
up to $400, plus one annual drawing for a $100,000 jackpot. Only
Michigan residents are eligible to participate.

This unusual CD is federally guaranteed by the National Credit Union
Administration and pays between 1% and 1.5% annual interest, a bit
lower than conventional rates. In 25 weeks, the program has attracted
about $3.1 million in new deposits, often from people who have never
been able to set money aside.

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