Behavioural Interventions
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Spousal control and intra-household decision making: An experimental study in the Philippines

I elicit causal effects of spousal observability and communication on financial choices of married individuals in the Philippines. When choices are private, men put money into their personal accounts. When choices are observable, men commit money to consumption for their own benefit. When required to communicate, men put money into their wives' account. These strong treatment effects on men, but not women, appear related more to control than to gender: men whose wives control household savings respond more strongly to the treatment and women whose husbands control savings exhibit the same response. Changes in information and communication interact with underlying control to produce mutable gender-specific outcomes. 

Author: Ashraf, N. 
Financial Decision: Total savings accumulated 
Year: 2009
Country: Philippines 
Product Type: Savings account 
Product Category: Savings 
Intervention: Social enforecement 
Intervention Area: Commitment features 

Barriers to Household Risk Management: Evidence from India

Why do many households remain exposed to large exogenous sources of non-systematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a pay-out ratio comparable to U.S. insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints and limited salience are significant non-price frictions that constrain demand. We suggest contract design improvements to mitigate these frictions. 

Author: Cole, S.  |  Giné, X.  |  Tobacman, J.  |  Topalova, P.  |  Townsend, R. M.  |  Vickery, J. 
Financial Decision: Enrolment 
Year: 2013
Country: India 
Product Type: Agricultural insurance 
Product Category: Insurance 
Intervention: Loss or gain framing  |  Messenger 
Intervention Area: Client communication 

Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya

Does limited access to formal savings services impede business growth in poor countries? To shed light on this question, we randomized access to non-interest-bearing bank accounts among two types of self-employed individuals in rural Kenya: market vendors (who are mostly women) and men working as bicycle taxi drivers. Despite large withdrawal fees, a substantial share of market women used the accounts, were able to save more, and increased their productive investment and private expenditures. We see no impact for bicycle- taxi drivers. These results imply significant barriers to savings and investment for market women in our study context. 

Author: Dupas, P.  |  Robinson, J. 
Financial Decision: Total savings accumulated 
Year: 2013
Country: Kenya 
Product Type: Savings account 
Product Category: Savings 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Why don't the poor save more? Evidence from health savings experiments

Using data from a field experiment in Kenya, we document that providing individuals with simple informal savings technologies can substantially increase investment in preventative health and reduce vulnerability to health shocks. Simply providing a safe place to keep money was sufficient to increase health savings by 66 percent. Adding an earmarking feature was only helpful when funds were put toward emergencies, or for individuals that are frequently taxed by friends and relatives. Group-based savings and credit schemes had very large effects. 

Author: Dupas, P.  |  Robinson, J. 
Financial Decision: Savings goal selected 
Year: 2013
Country: Kenya 
Product Type: Lock box 
Product Category: Savings 
Intervention: Commitment devices  |  Labelling/earmarking 
Intervention Area: Commitment features 

Microfinance Games

Microfinance banks use group-based lending contracts to strengthen borrowers' incentives for diligence, but the contracts are vulnerable to free-riding and collusion. We systematically unpack microfinance mechanisms through ten experimental games played in an experimental economics laboratory in urban Peru. Risk-taking broadly conforms to theoretical predictions, with dynamic incentives strongly reducing risk-taking even without group-based mechanisms. Group lending increases risk-taking, especially for risk-averse borrowers, but this is moderated when borrowers form their own groups. Group contracts benefit borrowers by creating implicit insurance against investment losses, but the costs are borne by other borrowers, especially the most risk averse. 

Author: Giné, X.  |  Jakiela, P.  |  Karlan, D.  |  Morduch, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2010
Country: Peru 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Commitment devices  |  Standard incentives 
Intervention Area: Commitment features  |  Pricing and financial benefits 

A personal touch in text messaging can improve microloan repayment

Because payment delays and defaults significantly affect both lenders and borrowers in fragile economies, strategies to improve timely loan repayment are needed to help make credit markets work smoothly. We worked with two microlenders to test the impact of randomly assigned text message reminders for loan repayments in the Philippines. Messages improved repayment only when they included the account officer’s name and only for clients serviced by the account officer previously. These results highlight the potential and limits of communication technology for improving loan repayment rates. They also suggest that personal connections between borrowers and bank employees can be harnessed to help overcome market failures. 

Author: Karlan, D.  |  Morten, M.  |  Zinman, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2016
Country: Philippines 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Reminders 
Intervention Area: Client communication 

Nudging Youth to Develop Savings Habits: Experimental Evidence Using SMS Messages

A field experiment articulating financial information via cell phone text messages and financial decisions among low-income youth in Colombia. For twelve months, youth accountholders are randomly assigned to receive either: (a) monthly financial education messages, (b) monthly savings reminders, (c) semi-monthly reminders, or (d) control. After 12 months, account balances in monthly and semi-monthly reminders groups increase by 28% and 43%, respectively, relative to controls. Financial education messages do not increase balances. Over two thirds of balance increases in reminder groups are net savings. Savings effects of reminders last eight months after youth stop receiving messages. 

Author: Rodríguez, C.  |  Saavedra, J. E. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Colombia 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Public vs. Private Mental Accounts: Empirical Evidence from Savings Groups in Colombia

I designed and implemented a Randomized Controlled Trial to study whether relatively simple modifications to how a commitment savings product was framed and labelled could affect savings accumulations and other outcomes of low-income individuals in newly formed Village Savings and Loan Associations (VSLAs) in Colombia. Motivated by hypotheses from behavioral economics the experiment tests hypotheses that behavioral responses should vary depending on whether subjects are led to label and create ‘mental savings accounts’ in private or public ways. Individuals in the private-labelling treatment groups were led to label their savings as earmarked for a particular purpose and to state savings accumulation targets, information which was shared only privately with a member of the research team. Individuals in the public-labelling treatment groups received the same intervention but were then asked to publicly reveal and announce their chosen goals to other members of their savings group. The average treatment effects of the biolabeling intervention are very strong and significant. Savings accumulations increased by an average of 35% and savings goals were 8.5% more likely to be reached in comparison to those untreated. Further explorations strongly suggests evidence of differentiated behavioral responses of individuals in the private-labelling treatment group: private commitment to a savings goal is more effective for individuals who, after random assignment but prior to the intervention, had been measured to be less constrained by economic circumstances and institutional barriers. The analysis and interpretation of results was enriched by mixed methods for data collection: households’ survey data, administrative records and qualitative data from focus groups discussions. 

Author: Salas, L. M. 
Financial Decision: Total savings accumulated 
Year: 2014
Country: Colombia 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Observing unobservables: Identifying information asymmetries with a consumer credit field experiment

Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of hidden information and hidden action problems in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers to former clients of a major South African lender along three dimensions: (i) an initial "offer interest rate" featured on a direct mail solicitation; (ii) a "contract interest rate" that was revealed only after a borrower agreed to the initial offer rate; and (iii) a dynamic repayment incentive that was also a surprise and extended preferential pricing on future loans to borrowers who remained in good standing. These three randomizations, combined with complete knowledge of the lender's information set, permit identification of specific types of private information problems. Our setup distinguishes hidden information effects from selection on the offer rate (via unobservable risk and anticipated effort), from hidden action effects (via moral hazard in effort) induced by actual contract terms. We find strong evidence of moral hazard and weaker evidence of hidden information problems. A rough estimate suggests that perhaps 13% to 21% of default is due to moral hazard. Asymmetric information thus may help explain the prevalence of credit constraints even in a market that specializes in financing high-risk borrowers. 

Author: Karlan, D.  |  Zinman, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2009
Country: South Africa 
Product Type: Loan 
Product Category: Credit 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Prompting Microfinance Borrowers to Save: A Field Experiment from Guatemala

Can microfinance borrowers use the discipline of regular loan repayments in order to accumulate savings if prompted to do so? In an experiment, we offered commercial savings products to the microfinance borrowers of Guatemala’s largest public-sector bank. We find that giving these borrowers the opportunity to develop a savings plan and be reminded of saving at the time of loan repayment caused no increase in the opening of savings accounts but led to balances among savers that were two and a half times those in the control. A second treatment arm that proposed a default savings contribution of 10% of the loan payment caused the fraction of clients using linked savings accounts to double, as well as elevated deposits among savers, leading to final savings balances that were more than five times the control. The savings treatments also generate faster pay down of debt and weakly better overall repayment performance, suggesting that simultaneous saving and borrowing can be complementary activities. A theoretical model shows that the simultaneous provision of debt and self-commitment savings products can also help a larger fraction of the population to eventually escape a debt-financed equilibrium. 

Author: Atkinson, J.  |  Janvry, A.  |  McIntosh, C.  |  Sadoulet, E. 
Financial Decision: Total savings accumulated 
Year: 2013
Country: Guatemala 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults  |  Commitment devices  |  Reminders 
Intervention Area: Client choice architecture  |  Commitment features  |  Client communication 

Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi

We implemented a randomized intervention among Malawian farmers aimed at facilitating formal savings for agricultural inputs. Treated farmers were offered the opportunity to have their cash crop harvest proceeds deposited directly into new bank accounts in their own names, while farmers in the control group were paid harvest proceeds in cash (the status quo). The treatment led to higher savings in the months immediately prior to the next agricultural planting season, and raised agricultural input usage in that season. We also find positive treatment effects on subsequent crop sale proceeds and household expenditures. Because the treatment effect on savings was only a small fraction of the treatment effect on the value of agricultural inputs, mechanisms other than alleviation of savings constraints per se are needed to explain the treatment’s impact on input utilization. We discuss other possible mechanisms through which treatment effects may have operated. 

Author: Brune, L.  |  Giné, X.  |  Goldberg, J.  |  Yang, D. 
Financial Decision: Enrolment 
Year: 2015
Country: Malawi 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices  |  Prize-linked 
Intervention Area: Commitment features  |  Pricing and financial benefits 

Deposit Collectors

Informal lending and savings institutions exist around the world, and often include regular door-to-door deposit collection of cash. Some banks have adopted similar services in order to expand access to banking services in areas that lack physical branches. Using a randomized control trial, we investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines. Of 137 individuals offered the service in the treatment group, 38 agreed to sign-up, and 20 regularly used the service. Take-up is predicted by distance to the bank (a measure of transaction costs of depositing without the service) as well as being married (a suggestion that household bargaining issues are important). Those offered the service saved 188 pesos more (which equates to about a 25% increase in savings stock) and were slightly less likely to borrow from the bank. 

Author: Ashraf, N.  |  Karlan, D.  |  Yin, W. 
Financial Decision: Total savings accumulated 
Year: 2005
Country: Philippines 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Household decision making and savings impacts: further evidence from a commitment savings product in the Philippines

Commitment devices for savings could benefit those with self-control as well as familial or spousal control issues. We find evidence to support both motivations. We examine the impact of a commitment savings product in the Philippines on household decision making power and self-perception of savings behavior, as well as actual savings. The product leads to more decision making power in the household for women, and likewise more purchases of female-oriented durable goods. We also find that the product leads women who appear time-inconsistent in a baseline survey to self-report being a disciplined saver in the follow-up survey. For impact on savings balances, we find that the 81% increase in savings after one year did not crowd out savings held outside of the participating bank, but that the longer-term impact over two and a half years on bank savings dissipated to only a 33% increase, which is no longer statistically significant. We discuss reasons why the effect dissipated and the implications for designing and implementing sustainable, equilibrium-shifting interventions. 

Author: Ashraf, N.  |  Karlan, D.  |  Yin, W. 
Financial Decision: Total savings accumulated 
Year: 2005
Country: Philippines 
Product Type: Lock box 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

What's Psychology Worth? A Field Experiment in the Consumer Credit Market

Numerous laboratory studies report on behaviours inconsistent with rational economic models. How much do these inconsistencies matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experiences? We report on a field experiment designed to address this question. Incumbent clients of a lender in South Africa were sent letters offering them large, short-term loans at randomly chosen interest rates. Psychological “features” on the letter, which did not affect offer terms or economic content, were also independently randomized. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, the psychological features also significantly affected take-up. The independent randomizations allow us to quantify the relative importance of psychological features and prices. Our core finding is the sheer magnitude of the psychological effects. On average, any one psychological manipulation has the same effect as a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers. Moreover, the psychological features do not appear to draw in marginally worse clients, nor does the magnitude of the psychological effects vary systematically with income or education. In short, even in a market setting with large stakes and experienced customers, subtle psychological features that normatively ought to have no impact appear to be extremely powerful drivers of behavior. 

Author: Bertrand, M.  |  Karlan, D.  |  Mullainathan, S.  |  Shafir, E.  |  Zinman, J. 
Financial Decision: Enrolment 
Year: 2005
Country: South Africa 
Product Type: Loan 
Product Category: Credit 
Intervention: Prize-linked  |  Loss or gain framing 
Intervention Area: Pricing and financial benefits  |  Client communication 

What's Advertising Content Worth? Evidence from a consumer credit marketing field experiment

Firms spend billions of dollars each year advertising consumer products in order to influence demand. Much of these outlays are on the creative design of advertising content. Creative content often uses nuances of presentation and framing that have large effects on consumer decision making in laboratory studies. But there is little field evidence on the effect of advertising content as it compares in magnitude to the effect of price. We analyse a direct mail field experiment in South Africa implemented by a consumer lender that randomized creative content and loan price simultaneously. We find that content has significant effects on demand. There is also some evidence that the magnitude of content sensitivity is large relative to price sensitivity. However, it was difficult to predict which particular types of content would significantly impact demand. This fits with a central premise of psychology context matters— and highlights the importance of testing the robustness of laboratory findings in the field. 

Author: Bertrand, M.  |  Karlan, D.  |  Mullainathan, S.  |  Shafir, E.  |  Zinman, J. 
Financial Decision: Enrolment 
Year: 2010
Country: South Africa 
Product Type: Loan 
Product Category: Credit 
Intervention: Prize-linked  |  Loss or gain framing 
Intervention Area: Pricing and financial benefits  |  Client communication 

Getting to the Top of Mind: How Reminders Increase Saving

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. We find support for these predictions in three field experiments that randomly assign reminders to new savings account holders. 

Author: Karlan, D.  |  McConnell, M.  |  Mullainathan, S.  |  Zinman, J. 
Financial Decision: Total savings accumulated 
Year: 2010
Country: Philippines 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Getting to the Top of Mind: How Reminders Increase Saving

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. We find support for these predictions in three field experiments that randomly assign reminders to new savings account holders. 

Author: Karlan, D.  |  McConnell, M.  |  Mullainathan, S.  |  Zinman, J. 
Financial Decision: Total savings accumulated 
Year: 2010
Country: Peru 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Getting to the Top of Mind: How Reminders Increase Saving

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. We find support for these predictions in three field experiments that randomly assign reminders to new savings account holders. 

Author: Karlan, D.  |  McConnell, M.  |  Mullainathan, S.  |  Zinman, J. 
Financial Decision: Total savings accumulated 
Year: 2010
Country: Bolivia 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Self Control and Liquidity: How to Design a Commitment Contract

If individuals have self-control problems that lead them to spend money when they had previously planned to save it, they may take up financial commitment devices that restrict their future ability to access their funds. We experimentally investigate how the demand for commitment contracts is affected by contract design features. In our experiments, each subject is endowed with a sum of money and asked to divide that money between a liquid account, which permits unrestricted withdrawals at any time over the course of the months-long experiment, and one or more commitment accounts, which impose withdrawal penalties or restrictions. The design features of the liquid account are the same for all subjects, but the design features of the commitment account(s) are randomized across subjects. When the interest rates on the two types of accounts are the same, we find that allocations to a commitment account are higher when the account is less liquid. The commitment account that disallows early withdrawals altogether attracts the largest allocations. However, this relationship no longer holds when the commitment account interest rate is greater than the liquid account interest rate. 

Author: Beshears, J. L.  |  Choi, J. J.  |  Laibson, D.  |  Madrian, B. C.  |  Sakong, J. 
Financial Decision: Contribution level 
Year: 2012
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Between Intention and Action: An Experiment on Individual Savings

This study provides experimental evidence about the barriers to adoption of formal savings in Africa. In collaboration with a large commercial bank, I conduct an experiment designed to measure the relative importance of convenience and information on the adoption of formal savings. When individuals can open an account at their place of business they are much more likely to open an account. Novel information about the benefits of savings has a slight but insignificant negative effect on account opening. While over half (55%) of individuals report an interest in opening an account when initially approached, only 2% of individuals are using the accounts 2 months later. I explore several potential explanations between individuals' self-reports of interest in the accounts and their later behaviour. I argue that individuals' behaviour in the experiment is consistent with social pressure to conform to the encouragement to open an account and some projection bias in predicting their future behavior. The results illustrate that for individuals struggling to save, encouraging enrolment in formal finance may be less effective than tools which help individuals follow-through with self-reported savings intentions. 

Author: McConnell, M. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2012
Country: Ghana 
Product Type: Savings account 
Product Category: Savings 
Intervention: Messenger 
Intervention Area: Client communication 

Quasi-experimental evidence on the drivers of index-based livestock insurance demand in Southern Ethiopia

Microinsurance is widely considered an important tool for sustainable poverty reduction, especially in the face of increasing climate risk. Although index-based microinsurance, which should be free from the classical incentive problems, has attracted considerable attention, uptake rates have generally been weak in low-income rural communities. We explore the purchase patterns of index-based livestock insurance in southern Ethiopia, focusing in particular on the role of accurate product comprehension and price, including the prospective impact of temporary discount coupons on subsequent period demand due to price anchoring effects. We find that randomly distributed learning kits contribute to improving subjects’ knowledge of the products; however, we do not find strong evidence that the improved knowledge per se induces greater uptake. We also find that reduced price due to randomly distributed discount coupons has an immediate, positive impact on uptake, without dampening subsequent period demand due to reference-dependence associated with price anchoring effects. 

Author: Barrett, C. B.  |  Ikegami, M.  |  Sheahan, M.  |  Takahashi, K. 
Financial Decision: Cover level selected  |  Enrolment 
Year: 2014
Country: Ethiopia 
Product Type: Livestock insurance 
Product Category: Insurance 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

The Economics and Psychology of Long-Term Savings and Pensions

This policy brief describes lessons from a large-scale field experiment that utilizes a pension instrument to understand the determinants of long-term savings among low income entrepreneurs in rural and semi-urban Western India. With a majority of the Indian working population employed in the informal sector without access to social security benefits, savings and pension products, and minimal access to sources of credit, the financial vulnerability of these groups is of growing concern. As we attempt to economically empower these vulnerable groups, a key policy concern is encouraging them to voluntary participate in long term savings, irrespective of variations in time and income flows – a move which will go a long way in ensuring financial security. We use a commitment savings pension instrument to explore different demand-side factors to inform policy on incentivizing long term savings behavior among low income households across developing countries. 

Author: Basu, K.  |  Bisht, S. S. 
Financial Decision: Enrolment 
Year: None
Country: India 
Product Type: Pension 
Product Category: Savings 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

The Economics and Psychology of Long-Term Savings and Pensions

This policy brief describes lessons from a large-scale field experiment that utilizes a pension instrument to understand the determinants of long-term savings among low income entrepreneurs in rural and semi-urban Western India. With a majority of the Indian working population employed in the informal sector without access to social security benefits, savings and pension products, and minimal access to sources of credit, the financial vulnerability of these groups is of growing concern. As we attempt to economically empower these vulnerable groups, a key policy concern is encouraging them to voluntary participate in long term savings, irrespective of variations in time and income flows – a move which will go a long way in ensuring financial security. We use a commitment savings pension instrument to explore different demand-side factors to inform policy on incentivizing long term savings behavior among low income households across developing countries. 

Author: Basu, K.  |  Bisht, S. S. 
Financial Decision: Total savings accumulated 
Year: None
Country: India 
Product Type: Pension 
Product Category: Savings 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Does Microfinance Repayment Flexibility Affect Entrepreneurial Behaviour and Loan Default?

Recent evidence suggests heterogeneous impacts of microfinance loans, with limited average effects on enterprise growth among the poor. One possibility is that the rigidity of the classic microcredit contract - widely held to be important for reducing default - inhibits investment in microenterprises. To explore these trade-offs, we provide experimental estimates of the consequences for client investment behavior of introducing a grace period before repayment begins. Delaying the onset of repayment by two months significantly increases both business investment and default. Taken together, the results are consistent with clients on the delay cycle choosing investments with higher expected income but more variable returns. 

Author: Field, E.  |  Pande, R.  |  Papp, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2010
Country: India 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Filling the Gap: Innovative and Interactive Ways to Increase the Savings of Rural Women in India

The gender gap in financial literacy (knowledge and capability) shows many women are not informed to make decisions on which products and services to take up as well as how to manage their long-term finances. Development experts argue that what women truly need is education and counselling on how to maximize the minimal funds they are investing and saving. At the same time, financial education is not enough if women do not have access to saving products. Experts argue that due to self-control or spousal control issues, women need specific mechanisms that help them commit to save. As liquidity is the main concern that women face, women need highly liquid savings products, at the same time, these savings products should help them commit to a savings plan. Lately, economists and researchers have experimented with commitment savings instruments beyond basic banking access, such as, a secure lockbox to store money, saving with the group, and others. We conducted an experiment in Bihar, eastern state of India, with 203 women, many of whom were a part of Self Help Groups (SHGs). We tested context-specific Financial Education (FE) to understand whether these modules help women become more aware of their savings habits. We also provided an alternate savings tool--a lock box with a key--to see if the highly flexible savings products could improve their savings capability. Findings suggest that providing a low-cost tool such as a lock box, along with the relatable FE modules, improved the savings behaviour of women. For example, savings of women in our study group increased by 42-50% within a 3-month period. A mere placement of the concept of daily savings in the minds of women brought about a shift in their perception of their own income. Placing small change in a lock box with a key provided a safe space to protect from unnecessary daily expenditure and simultaneously promoted dialogue within the household itself on future-oriented spending. 

Author: Bhattacharya, S.  |  Kc, D.  |  Mehta, V.  |  Tiwari, M. 
Financial Decision: Total savings accumulated 
Year: 2015
Country: India 
Product Type: Lock box 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Smallholder access to weather securities in India

Weather-based insurance products insure farmers against production risks on the basis of a weather index that is highly correlated to local yields. Indemnifications are triggered by prespecified patterns of the index, as opposed to actual yields. This eliminates the requirement of on-field assessments for indemnification, thereby lowering administrative costs and time. Therefore, index-based insurance products have been regarded as having enormous potential to reach small farmers in developing countries. Surprisingly, the demand and take-up rates are low for weather index insurance (WII) products. One of the reasons hypothesised for the low demand and take-up of index-based insurance products is their inherent complexity, which makes it difficult for farmers to perceive the direct benefits. Hence, to encourage stronger participation, the project introduced an innovative WII product that was simple, transparent, flexible and affordable for smallholder farmers. In fact, the insurance product was a menu of very simple insurance options, each with a flat payment, but different triggers and for different coverage periods. This product was tested in three districts of Madhya Pradesh, India, during two consecutive summer agricultural seasons (known as kharif in India) in 2011 and 2012 among the farmers who were cultivating rained soya bean crop. . 

Author: Butler, A.  |  Ceballos, F.  |  Manuel R, I.  |  Robles, M. 
Financial Decision: Enrolment 
Year: 2015
Country: India 
Product Type: Weather-indexed insurance 
Product Category: Insurance 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Message framing and buying behavior: A field experiment

The article examines the impact of message framing on real life buying behavior. Customers of a credit card company who did not use the card for a three-month period received a communication explaining the benefits of the card. These benefits were explained either in terms of gains the customers could obtain from using the card or in terms of losses they could suffer from not using it. Card usage was monitored for two months after the message. Results indicated that the impact of the loss-framed message was much stronger than the impact of the gain-framed message. The percentage of customers who started to use the card in the loss condition was more than double the percentage in the gain conditions, and the charges of the former customers were more than twice as much as the charges of the latter customers. In addition, an interview conducted with some of the customers 6 months after the initial contact revealed an effect of framing on persuasiveness and recall of the message and on involvement with the method of payment. 

Author: Ganzach, Y.  |  Karsahi, N. 
Financial Decision: Selected repayment contribution 
Year: 1995
Country: Israel 
Product Type: Credit card 
Product Category: Credit 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

Dual payoff scenario warnings on credit card statements elicit suboptimal payoff decisions

U.S. Federal regulation from 2009 requires credit card companies to convey information regarding payoff scenarios, i.e., details such as total amount paid and time to pay off when only a minimum payment is made (over time). Across seven studies, the present research shows that consumers who were given a dual payoff scenario (i.e., how much is paid in total based on the minimum payment and also based on a 3-year payoff window) on credit card statements recommended lower payments than those given a single payoff scenario (when the 3-year payment amount was less than what they would have paid otherwise), and were less likely to pay off the balance in full. The effect is driven by a tendency of consumers to infer that the 3-year payment amount is the most appropriate. The dual-scenario effect is minimized by an intervention that draws attention away from the 3-year payment amount. Theoretical and public policy implications are considered. 

Author: Hershfield, H. E.  |  Roese, N. J. 
Financial Decision: Selected repayment contribution 
Year: 2015
Country: United States 
Product Type: Credit card 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

Effects of Payment Mechanism on Spending Behavior: The Role of Rehearsal and Immediacy of Payments

Past expenses have been shown to influence future spending behavior by depleting available budgets. However, a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them. This article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending. Specifically, past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid (rehearsal) and when the consumer’s wealth is depleted immediately rather than with a delay (immediacy). Two experiments show support for the proposed theoretical framework. 

Author: Soman, D. 
Financial Decision: Payment frequency 
Year: 2001
Country: United States 
Product Type: Cheque book  |  Credit card 
Product Category: Payments  |  Credit 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Banking the Poor via Savings Accounts: Evidence from a Field Experiment

The majority of the poor lack access to bank accounts and have to use costly informal savings mechanisms. Using a field experiment, I randomly gave access to simple bank accounts with no fees at local bank branches to a large sample of female household heads in Nepal. Results show that there is untapped demand for savings accounts and that the poor do save. Access to the savings accounts increased monetary assets and total assets without crowding out other kinds of assets or savings institutions. Finally, financial access strongly increased households’ investments in health and education. 

Author: Prina, S. 
Financial Decision: Total savings accumulated 
Year: 2013
Country: Nepal 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Directing remittances to education with soft and hard commitments: Evidence from a lab-in-the-field experiment and new product take-up among Filipino migrants in Rome

This paper tests how migrants’ willingness to remit changes when given the ability to direct remittances to educational purposes using different forms of commitment. Variants of a dictator game in a lab-in-the-field experiment with Filipino migrants in Rome are used to examine remitting behaviour under varying degrees of commitment. These range from the soft commitment of simply labelling remittances as being for education, to the hard commitment of having funds directly paid to a school and the student’s educational performance monitored. We find that the introduction of simple labelling for education raises remittances by more than 15%. Adding the ability to directly send this funding to the school adds only a further 2.2%. We randomly vary the information asymmetry between migrants and their most closely connected household, but find no significant change in the remittance response to these forms of commitment as information varies. Behaviour in these games is then shown to be predictive of take-up of a new financial product called EduPay, designed to allow migrants to directly pay remittances to schools in the Philippines. We find this take-up is largely driven by a response to the ability to label remittances for education, rather than to the hard commitment feature of directly paying schools. 

Author: De Arcangelis, G.  |  Joxhe, M.  |  McKenzie, D.  |  Tiongson, E.  |  Yang, D. 
Financial Decision: Payment amount 
Year: 2015
Country: Italy 
Product Type: Remittances 
Product Category: Payments 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Bank-Insured RoSCA for Microfinance: Experimental Evidence in Poor Egyptian Villages

Microfinance institutions (MFIs) have continued to grow over the past few decades, both in numbers of clients and portfolio sizes. The growth of these MFIs has enabled greater access to credit in many of the world’s less developed nations. However, recent studies have shown that very many of the poor – especially Muslims – remain unbanked, and many who have access to banks remain credit constrained. Confounding this problem in many Muslim countries is the poor’s propensity to reject microfinance, when available, on religious grounds. In this paper we propose an alternative microfinance model built on the familiar rotating savings and credit association (RoSCA) model that is Islamically accepted, and test its performance against sequential Grameen-style microcredit provision in a “laboratory experiment in the field” conducted in poor Egyptian villages. Our model of bank-insured RoSCAs is shown to solve coordination failure problems that may otherwise prevent the spontaneous development of informal RoSCAs in practice. Empirically, our guaranteed RoSCA model generated significantly higher take-up and repayment rates than the Grameen model, suggesting that this model can be a useful alternative for Islamic countries where many of the poor have rejected conventional modes of microfinance. 

Author: El-Gamal, M.  |  El-Komi, M.  |  Karlan, D.  |  Osman, A. 
Financial Decision: Repayment of outstanding loan 
Year: 2011
Country: Egypt 
Product Type: Loan 
Product Category: Credit 
Intervention: Social norms 
Intervention Area: Client communication 

Moral Hazard and Peer Monitoring in a Laboratory Microfinance Experiment

Most problems with formal sector credit lending to the poor in developing countries can be attributed to the lack of information and inadequate collateral. One common feature of successful credit mechanisms is group-lending, where the loan is advanced to an individual if he/she is a part of a group and members of the borrowing group can monitor each other. Since group members have better information about each other compared to lenders, peer monitoring is often less expensive than lender monitoring. Theoretically this leads to greater monitoring and greater rates of loan repayments. This paper reports the results from a laboratory experiment of group lending in the presence of moral hazard and (costly) peer monitoring. We compare peer monitoring treatments when credit is provided to members of the group sequentially and simultaneously, and individual lending with lender monitoring. The results depend on the relative cost of monitoring by the peer vis-à-vis the lender. In the more typical case where the cost of peer monitoring is lower than the cost of lender monitoring, our results suggest that peer monitoring results in higher loan frequencies, higher monitoring and higher repayment rates compared to lender monitoring. In the absence of monitoring cost differences, performance is mostly similar across group and individual lending schemes, although loan frequencies and monitoring rates are sometimes modestly greater with group lending. Within group lending, although the dynamic incentives provided by sequential leading generate the greatest equilibrium surplus, simultaneous group leading provides equivalent empirical performance. 

Author: Cason, T. N.  |  Gangadharan, L.  |  Maitra, P. 
Financial Decision: Selected repayment contribution 
Year: 2008
Country: Australia 
Product Type: Loan 
Product Category: Credit 
Intervention: Social norms 
Intervention Area: Client communication 

Consumers' credit card repayment decisions: The role of higher anchors and future repayment concern

We investigated two aspects of credit card repayment decisions: the extent to which the anchoring effect of minimum repayment information may be mitigated by information on alternative anchors, specifically repayments that would repay the balance in two years (Study 1) or nine months (Study 2); and the role of future repayment concern. In two experiments, three realistic credit card statements were presented with different outstanding balances. Participants, who were randomly allocated to one of four information conditions depending on supplementary information provided on the statements, stated how much they would repay that month. They were then asked about concerns they would have about repayment difficulties if they had a fixed consumer loan over three years. In Study 1 the alternative two-year repayment anchor had a negative effect on percent repayment, whereas in Study 2 the nine-month repayment anchor had a significant positive effect, especially for those with higher future repayment concern. Also, in both studies, future repayment concern had a direct inverse effect on repayment decisions which partially mediated the effect of disposable income. It is concluded that the addition to credit card statements of a table of cost and duration information for a range of repayment amounts may usefully support repayment decisions. 

Author: McHugh, S.  |  Ranyard, R. 
Financial Decision: Selected repayment contribution 
Year: 2016
Country: United Kingdom 
Product Type: Credit card 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

Increasing saving behavior through age-progressed renderings of the future self

Many people fail to save what they need to for retirement (Munnell, Webb, and Golub-Sass 2009). Research on excessive discounting of the future suggests that removing the lure of immediate rewards by pre-committing to decisions, or elaborating the value of future rewards can both make decisions more future-oriented. In this article, we explore a third and complementary route, one that deals not with present and future rewards, but with present and future selves. In line with thinkers who have suggested that people may fail, through a lack of belief or imagination, to identify with their future selves (Parfit 1971; Schelling 1984), we propose that allowing people to interact with age-progressed renderings of themselves will cause them to allocate more resources toward the future. In four studies, participants interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In all cases, those who interacted with virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones. 

Author: Bailenson, J. N.  |  Carstensen, L. L.  |  Fox, J.  |  Goldstein, D. G.  |  Hershfield, H. E.  |  Sharpe, W. F.  |  Yeykelis, L. 
Financial Decision: Total savings accumulated 
Year: 2011
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Virtual reality 
Intervention Area: Client communication 

Minimum required payment and supplemental information disclosure effects on consumer debt repayment decisions

Repayment decisions—how much of the loan to repay and when to make the payments—directly influence consumer debt levels. The authors examine how minimum required payment policy and loan information disclosed to consumers influence repayment decisions. They find that though presenting minimum required payment information has a negative impact on repayment decisions, increasing the minimum required level has a positive effect on repayment for most consumers. Experimental evidence from U.S. consumers shows that consumers’ propensity to pay the minimum required each month moderates these effects; U.K. credit card field data indicates that these effects are also moderated by borrowers’ credit limit and balance due. However, increasing the minimum level is unlikely to completely eliminate the negative effect of presenting minimum payment information. In addition, disclosing supplemental information, such as future interest cost and time needed to repay the loan, does not reduce the negative effects of including minimum payment information and has no substantial positive effect on repayments. This research offers new insights into the debt repayment process and has implications for consumers, lenders, and public policy. 

Author: Harris, A. J.  |  Lemon, K. N.  |  Matthews, W. J.  |  Navarro-Martinez, D.  |  Salisbury, L. C.  |  Stewart, N. 
Financial Decision: Selected repayment contribution 
Year: 2011
Country: United States 
Product Type: Credit card 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

The Fewer the Better: Number of Goals and Savings Behaviour

This article examines the effect of the number of goals on consumers' savings behavior. Drawing from research on implementation intention, the authors show that under certain conditions, presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals. Multiple goals typically evoke trade-offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind-set and defer actions. In contrast, the authors pro pose and demonstrate that a single goal evokes a stronger implementation intention, which in turn has a greater effect on behavior change. They also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves. Theoretical and practical implications are discussed. 

Author: Soman, D.  |  Zhao, M. 
Financial Decision: Total savings accumulated 
Year: 2011
Country: India 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

The Fewer the Better: Number of Goals and Savings Behaviour

This article examines the effect of the number of goals on consumers' savings behavior. Drawing from research on implementation intention, the authors show that under certain conditions, presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals. Multiple goals typically evoke trade-offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind-set and defer actions. In contrast, the authors pro pose and demonstrate that a single goal evokes a stronger implementation intention, which in turn has a greater effect on behavior change. They also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves. Theoretical and practical implications are discussed. 

Author: Soman, D.  |  Zhao, M. 
Financial Decision: Total savings accumulated 
Year: 2012
Country: India 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

The Fewer the Better: Number of Goals and Savings Behaviour

This article examines the effect of the number of goals on consumers' savings behavior. Drawing from research on implementation intention, the authors show that under certain conditions, presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals. Multiple goals typically evoke trade-offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind-set and defer actions. In contrast, the authors pro pose and demonstrate that a single goal evokes a stronger implementation intention, which in turn has a greater effect on behavior change. They also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves. Theoretical and practical implications are discussed. 

Author: Soman, D.  |  Zhao, M. 
Financial Decision: Savings goal selected 
Year: 2012
Country: Hong Kong 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Goal-directed  |  Implementation intention 
Intervention Area: Commitment features 

The Fewer the Better: Number of Goals and Savings Behaviour

This article examines the effect of the number of goals on consumers' savings behavior. Drawing from research on implementation intention, the authors show that under certain conditions, presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals. Multiple goals typically evoke trade-offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind-set and defer actions. In contrast, the authors pro pose and demonstrate that a single goal evokes a stronger implementation intention, which in turn has a greater effect on behavior change. They also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves. Theoretical and practical implications are discussed. 

Author: Soman, D.  |  Zhao, M. 
Financial Decision: Total savings accumulated 
Year: 2011
Country: Canada 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Goal-directed  |  Implementation intention 
Intervention Area: Commitment features 

Knowing When to Spend: Unintended Financial Consequences of Earmarking to Encourage Savings

Maintaining savings is an important financial goal. Yet, there are times when savings should be spent; for example, when people face unavoidable costs and spending savings means avoiding high-interest rate debt. Existing behavioral research has focused on consumer decisions between savings and discretionary spending and has developed interventions to promote savings in these contexts. However, when spending is non-discretionary, these interventions risk exacerbating a pattern found in economic research that people borrow high-interest rate debt while maintaining savings earning low levels of interest. We examine how mental accounting interacts with considerations of personal responsibility and guilt to contribute to this pattern. Specifically, we explore whether people will spend savings in times when they need money most: emergencies. Across six studies, we find that people’s tendency to preserve savings in favour of borrowing from a high interest rate credit option varies as a function of the savings’ intended use. Paradoxically, people are most likely to turn to high interest rate credit under the belief that doing so is the responsible option. 

Author: O' Brien, R. L.  |  Sussman, A. B. 
Financial Decision: Selected repayment contribution 
Year: 2016
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Knowing When to Spend: Unintended Financial Consequences of Earmarking to Encourage Savings

Maintaining savings is an important financial goal. Yet, there are times when savings should be spent; for example, when people face unavoidable costs and spending savings means avoiding high-interest rate debt. Existing behavioral research has focused on consumer decisions between savings and discretionary spending and has developed interventions to promote savings in these contexts. However, when spending is non-discretionary, these interventions risk exacerbating a pattern found in economic research that people borrow high-interest rate debt while maintaining savings earning low levels of interest. We examine how mental accounting interacts with considerations of personal responsibility and guilt to contribute to this pattern. Specifically, we explore whether people will spend savings in times when they need money most: emergencies. Across six studies, we find that people’s tendency to preserve savings in favour of borrowing from a high interest rate credit option varies as a function of the savings’ intended use. Paradoxically, people are most likely to turn to high interest rate credit under the belief that doing so is the responsible option. 

Author: O' Brien, R. L.  |  Sussman, A. B. 
Financial Decision: Selected repayment contribution 
Year: 2016
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Participation and investment decisions in a retirement plan: the influence of colleagues' choices

This paper investigates whether peer effects play an important role in retirement savings decisions. We use individual data from employees of a large university to study whether individual decisions to enrol in a Tax Deferred Account plan sponsored by the university, and the choice of the mutual fund vendor for people who choose to enrol, are affected by he decisions of other employees in the same department. To overcome the identification problems, we divide the departments into sub-groups (along gender, status, age, and tenure lines) and we instrument the average participation of each peer group by the salary or tenure structure in this group. Our results suggest that peer effects may be an important determinant of savings decisions. 

Author: Duflo, E.  |  Saez, E. 
Financial Decision: Total savings accumulated 
Year: 2002
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Social norms 
Intervention Area: Client communication 

Minimum Payment Warnings and Information Disclosure Effects on Consumer Debt Repayment Decisions

Public policy makers encourage lenders to disclose loan cost information as a way of enabling borrowers to make more-informed debt repayment decisions. For example, current regulation requires credit card lenders to include a “minimum payment warning” on borrowers’ monthly statements, with the goal of encouraging borrowers to make larger monthly repayments each month and, consequently, decrease their debt levels. This research examines the effect of disclosing such information about future interest costs and time to pay off debt on consumers’ repayment decisions. The results indicate that disclosing information about the effects of repaying the minimum has little impact on repayment decisions. However, disclosing information about the effect of choosing an alternative course of action (i.e., a larger repayment amount) yielded a robust effect on repayment decisions. The findings suggest that cost information increases repayment amount for some borrowers, whereas time information may decrease repayment for others, especially those with little knowledge of interest compounding. This research provides some initial evidence of the impact of the CARD Act as well as that of similar regulations in Australia and Canada. 

Author: Salisbury, L. C. 
Financial Decision: Repayment of outstanding loan 
Year: 2014
Country: United States 
Product Type: Loan 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

Minimum Payment Warnings and Information Disclosure Effects on Consumer Debt Repayment Decisions

Public policy makers encourage lenders to disclose loan cost information as a way of enabling borrowers to make more-informed debt repayment decisions. For example, current regulation requires credit card lenders to include a “minimum payment warning” on borrowers’ monthly statements, with the goal of encouraging borrowers to make larger monthly repayments each month and, consequently, decrease their debt levels. This research examines the effect of disclosing such information about future interest costs and time to pay off debt on consumers’ repayment decisions. The results indicate that disclosing information about the effects of repaying the minimum has little impact on repayment decisions. However, disclosing information about the effect of choosing an alternative course of action (i.e., a larger repayment amount) yielded a robust effect on repayment decisions. The findings suggest that cost information increases repayment amount for some borrowers, whereas time information may decrease repayment for others, especially those with little knowledge of interest compounding. This research provides some initial evidence of the impact of the CARD Act as well as that of similar regulations in Australia and Canada. 

Author: Salisbury, L. C. 
Financial Decision: Repayment of outstanding loan 
Year: 2014
Country: United States 
Product Type: Loan 
Product Category: Credit 
Intervention: Anchoring  |  Loss or gain framing 
Intervention Area: Client communication 

Savings, Sub goals, and Reference Points

Decision makers often save money for a specific goal by forgoing discretionary consumption and instead putting the money toward the savings goal. We hypothesized that reference points can be exploited to enhance this type of saving. In two hypothetical scenario studies, subjects made judgments of their likelihood to forgo a smaller expenditure in order to put the money toward the savings goal. In Experiment 1 judgments were higher if the savings goal was presented as composed of weekly sub goals (e.g., save $60 per week to buy a $180 iPod). Experiment 2 replicated this finding and demonstrated that the sub goal manipulation increased judgments of likelihood to save money only when the money saved from the foregone consumption would allow the decision maker to meet the weekly sub goal exactly (not under or overshoot it). These results suggest a reference point mechanism and point to ways that behavioural decision research can be harnessed to improve economic behaviours. 

Author: Chapman, G. B.  |  Colby, H. 
Financial Decision: Savings goal selected 
Year: 2013
Country: United States 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Anchoring 
Intervention Area: Client communication 

Nudging credit scores in the field: the effect of text reminders on creditworthiness in the United States

In this paper we present evidence from a field experiment on the effect of text message reminders and credit card APR (annual payment rate) information on credit scores of low-to- moderate-income individuals. We find that individuals who initially had a low credit score benefited significantly from receiving the text reminders, while individuals who initially had a mid or high score did not. The positive effect on low-score individuals stems from the reduction of debt and better payment patterns. For mid-score individuals, we find a positive effect on payment patterns but no effect on credit scores; this may be because a better payment pattern is slower than a worse payment pattern to affect a credit score. For initially high-credit score individuals, we find a negative effect on credit scores, due to higher collection accounts. As for APR information, we find only sporadic effects: it helped reduce the number of inquiries for low-score individuals and reduce collection accounts of mid-score individuals, yet it contributed to greater past-due balances of high-score individuals. 

Author: Bracha, A.  |  Meier, S. 
Financial Decision: Repayment of outstanding loan 
Year: 2014
Country: United States 
Product Type: Credit card 
Product Category: Credit 
Intervention: Reminders  |  Social norms 
Intervention Area: Client communication 

The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field

Recent research suggests that the method of making a payment can influence the willingness to pay and consumption behavior. In this manuscript, we argue that payment mechanisms differ from each other along the dimensions of transparency, and that the degree of transparency correlates positively with the pain of paying using the mechanism, and negatively with consumption and spending. We replicate previous experimental results using quasi-experiments from the field, and find that the lower the payment transparency, the greater is the consumption. However, this effect is weak for products whose consumption rates are inflexible. 

Author: Soman, D. 
Financial Decision: Payment amount 
Year: 2003
Country: United States 
Product Type: Prepaid card 
Product Category: Payments 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field

Recent research suggests that the method of making a payment can influence the willingness to pay and consumption behavior. In this manuscript, we argue that payment mechanisms differ from each other along the dimensions of transparency, and that the degree of transparency correlates positively with the pain of paying using the mechanism, and negatively with consumption and spending. We replicate previous experimental results using quasi-experiments from the field, and find that the lower the payment transparency, the greater is the consumption. However, this effect is weak for products whose consumption rates are inflexible. 

Author: Soman, D. 
Financial Decision: Payment amount 
Year: 2003
Country: United States 
Product Type: Prepaid card 
Product Category: Payments 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field

Recent research suggests that the method of making a payment can influence the willingness to pay and consumption behavior. In this manuscript, we argue that payment mechanisms differ from each other along the dimensions of transparency, and that the degree of transparency correlates positively with the pain of paying using the mechanism, and negatively with consumption and spending. We replicate previous experimental results using quasi-experiments from the field, and find that the lower the payment transparency, the greater is the consumption. However, this effect is weak for products whose consumption rates are inflexible. 

Author: Soman, D. 
Financial Decision: Payment amount 
Year: 2003
Country: United States 
Product Type: Cheque book  |  Credit card 
Product Category: Payments  |  Credit 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Using Goals to Boost Savings

The Community Empowerment Fund (CEF) is a non-profit organization focused on enabling and sustaining transitions out of homelessness and poverty. Founded in 2009, CEF provides relationship-based support, workforce development, financial education, and matched savings accounts to individuals experiencing or at-risk of experiencing homelessness in Orange and Durham Counties of North Carolina. 

Author: Common Cents Lab 
Financial Decision: Savings goal reached 
Year: 2016
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Increasing Access to Good Debt

Through our behavioral diagnosis, we found a number of key insights that could be boiled down to one key concept: the application process was filled with unnecessary barriers. To qualify for a loan, applicants must fill out eight pages of information. This includes detailed information about the business’ revenue and accounting, a picture of the business, and social media information about the business. This is obviously a multi-step setup process, and it results in many small businesses starting the application, but failing to complete it, leading to a low conversion rate of just 20%. 

Author: Common Cents Lab 
Financial Decision: Enrolment 
Year: 2016
Country: United States 
Product Type: Loan 
Product Category: Credit 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Pay Off Loans Faster - Earn up

For a large share of Americans, housing costs are a severe burden. In 2014, the total number of households using more than 30% of their income for housing increased to 40 million, with almost 20% of households using more than 50% of their income to pay for housing costs. To address this financial burden, we partnered with fin-tech start-up EarnUp to help Americans pay off their home mortgages faster and increase long-term savings. EarnUp has built software that intelligently syncs users’ income and expenses. This expense-matching software helps users save thousands of dollars on debt interest reduce loan term by over five years, avoid default, and build net worth faster. 

Author: Common Cents Lab 
Financial Decision: Enrolment 
Year: 2016
Country: United States 
Product Type: Mortgage loan 
Product Category: Credit 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

Remembering to Pay? Reminders vs. Financial Incentives for Loan Payments

We report the results from a field experiment with a micro lender in Uganda to test the effectiveness of privately implemented incentives for loan repayment. Using a randomized control trial we measure the impact of three different treatments: Borrowers are either given a lump sum cash reward upon completion of the loan (equivalent to a 25% interest rate reduction on the current loan), a 25% reduction of the interest rate in the next loan the borrower takes from the bank, or a monthly text message reminder before the loan payment is due (SMS). We find that on average the size of the treatment effect is similar across all the treatment groups: borrowers in the treatment groups have a 7-9% increase in the probability of paying on time and the average days late drop by 2 days a month. The results suggest that simple text messages which help borrowers to better manage their repayment dates have similar effects as large changes in the cost of capital of 25% of interest. The impact of the cash back incentives are stronger for customers with smaller loans and less banking experience, the reduced future interest rate seemed to be most effective for customers with larger loans, while the SMS text messages were particularly effective for younger customers. 

Author: Cadena, X.  |  Schoar, A. 
Financial Decision: Repayment of outstanding loan 
Year: 2011
Country: Uganda 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Reminders 
Intervention Area: Client communication 

Small Cues Change Savings Choices

We present evidence from field experiments that savings choices are significantly affected by numerical cues in the environment, even when these cues are at best minimally informative. We randomized the one- or two-sentence savings cues present in emails to employees about their 401(k) savings plan. High savings cues increased 401(k) contribution rates by up to 2.9% of income in a pay period, and low savings cues decreased 401(k) contribution rates by up to 1.4% of income in a pay period. Cues affected 401(k) contribution rates for up to a year after the email. 

Author: Choi, J. J.  |  Haisley, E.  |  Kurkoski, J.  |  Massey, C. 
Financial Decision: Contribution level 
Year: 2013
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

The Persistent Power of Behavioural Change: Long-Run Impacts of Temporary Savings Subsidies for the Poor

I use a field experiment in rural Kenya to study how temporary incentives to save impact long-run economic outcomes. Study participants randomly selected to receive large temporary interest rates on an individual bank account had significantly more income and assets 2.5 years after the interest rates expired. These changes are much larger than the short-run impacts on experimental bank account use and almost entirely driven by growth in entrepreneurship. Temporary interest rates directed to joint bank accounts had no detectable long-run impacts on entrepreneurship or income, but increased investment in household public goods and spousal consensus over finances. 

Author: Schaner, S. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Kenya 
Product Type: Savings account 
Product Category: Savings 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

What will my account really be worth? An experiment on exponential growth bias and retirement saving

Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrolment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response. 

Author: Goda, G. S.  |  Manchester, C. F.  |  Sojourner, A. 
Financial Decision: Contribution level 
Year: 2012
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer borrowing less when a free formal savings account is available. Take-up patterns suggest that requests by others for participants to share their resources may be a key obstacle to saving. 

Author: Kast, F.  |  Pomeranz, D. 
Financial Decision: Enrolment 
Year: 2014
Country: Chile 
Product Type: Savings account 
Product Category: Savings 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Framing and the annuitization decision: Experimental evidence from a Dutch pension fund

We report the effects of framing and default settings in annuity demand after conducting a survey-based experiment with over 3,000 members of a Dutch occupational pension plan. The participants were asked to allocate their real projected pension accrual between a life annuity and a partial lump sum. In particular, we investigated the joint effects of consumption and investment frames and gain and loss frames. We present strong evidence for framing and default setting effects in annuity demand. We also find robust evidence of individual characteristics of influence annuity demand, highlighting the importance of heterogeneity among participants. Framing and default effects remain significant when we control for individual characteristics. We conclude Dutch plan members generally welcome the partial lump sum option over full annuitization. Framing and default settings are generally capable of predictively steering annuity demand. The precise effect framing may have also depends on the institutional environment, which predefines the perspective through which individuals filter annuities. 

Author: Bockweg, C.  |  Ponds, E.  |  Steenbeek, O.  |  Vonken, J. 
Financial Decision: Savings goal selected 
Year: 2016
Product Type: Pension 
Product Category: Savings 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

Get Your Goat: Planning, Saving, and Ceremonial Spending

Providing “nudges” or simple reminders is increasingly seen as a way to help households overcome behavioral biases. We conducted a randomized evaluation in Niger of interventions designed to assist households in planning for spending on religious ceremonies: a lockbox, SMS reminders about savings goals and a combination of the two. These interventions had no impact on household expenditures for religious festivals or other ceremonies, such as weddings, naming ceremonies or funerals. Nevertheless, they shifted the financial mechanisms that households used to pay for some of these events towards savings. The SMS interventions allowed households to increase their overall savings amounts, whereas the lockbox interventions allowed households to better meet certain savings goals, increase health expenditures and reduce food insecurity. These effects differ substantially between men and women, suggesting that the cooperative bargaining model may not hold. 

Author: Aker, J. C.  |  Goldstein, M.  |  McConnell, M.  |  O'Sullivan, M.  |  Sawyer, M. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Niger 
Product Type: Lock box 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

SEED: A commitment savings product in the Philippines

Microfinance institutions in developing countries increasingly offer a variety of savings products. Yet few studies have investigated the impact that savings product designs have on client savings levels. Since savings levels are generally considered to be low—from both client and institutional perspectives—this relationship must be better understood. With this in mind, we undertook an experimental “action research” project to study how the design of a savings product influences both the type of client attracted to the product and the impact the product has on financial savings. We first designed a prototype savings account with novel commitment features. We then observed its effects using an experimental evaluation design. We were especially interested in gathering evidence to answer the following questions: 1. Would those who chose to open this account share certain characteristics? More specifically, would this product help people who expressed a desire to save but had a difficult time doing so due to lack of self-control (i.e., difficulty avoiding temptation to spend cash in pocket) or spousal-control issues (i.e., difficulty keeping funds in the household away from their spouse)? 2. Does opening this new type of account cause an increase in the total financial savings of the client? That is, do the features we have included in the account actually work to help households increase their savings? The findings of this study have implications beyond the effect the product had on the lives of these particular individuals. Because we employed a rigorous experimental research design with random assignment of participants to treatment and control groups, we know that any increase in savings is a direct result of the product. We find a strong effect on savings that we can attribute to the product: after twelve months, average bank account balances increased by 80 percent on average for all who were assigned to the treatment group compared to those assigned to the control group. Those in the treatment group who actually opened the commitment savings product increased savings after twelve months by 337 percent. 

Author: Ashraf, N.  |  Karlan, D.  |  Yin, W. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2004
Country: Philippines 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Savings and prize-linked savings accounts

Many households have insufficient savings to handle moderate and routine consumption shocks. Many of these financially-fragile households also have the highest lottery expenditures as a proportion of income. This combination suggests that Prize-Linked Savings (PLS) accounts, combining security of principal with lottery-type jackpots, can increase savings among these at-risk households. Results from an online experiment show that the introduction of PLS accounts increase total savings and reduce lottery expenditures significantly, especially among individuals with the lowest levels of savings and income. The results imply that PLS accounts offer a plausible market-based solution to encourage individuals to increase savings 

Author: Atalay, K.  |  Bakhtiar, F.  |  Cheung, S. L.  |  Slonim, R. 
Financial Decision: Total savings accumulated 
Year: 2013
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Prize-linked  |  Standard incentives 
Intervention Area: Pricing and financial benefits 

Price and Information Type in Life Microinsurance Demand: Experimental Evidence from Mexico

Poor households in developing countries face large and varied risks, but often have inadequate informal tools to manage them. Microinsurance is being developed to create a better alternative, and it should--in theory--be in high demand. Yet take-up of microinsurance remains low. I study the impact of price and information on the demand for life microinsurance among microfinance borrowers of Compartamos in Mexico. I randomly assigned 8,700 borrowers to two of four treatments: (I) no longer receive a base amount of subsidized insurance coverage (high price) or keep the subsidy (low price), and (ii) being informed with a message emphasizing the financial toll of a funeral and how the insurance payoff helps to face it (financial information) or information emphasizing the emotional toll of a funeral on the surviving family (emotional information). On average, eliminating the subsidy led to a decrease in insurance coverage, but the two messages did not impact coverage. The impacts are heterogeneous, however. Although all borrowers decreased their coverage as the subsidy was eliminated, younger borrowers. presented with the emotional information were less likely to drop coverage than their counterparts presented with the financial information. The impact was reversed for middle-aged borrowers: the financial information led to a smaller drop in coverage following the elimination of the subsidy. The findings add to the literature on how information drives behavior in developing countries, and suggest that specific information provided at the time of choice was critical to help borrowers make a decision regarding a risk management strategy. 

Author: Bauchet, J. 
Financial Decision: Cover level selected 
Year: 2014
Country: Mexico 
Product Type: Life insurance 
Product Category: Insurance 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Savings Monitors

We conduct a field experiment in India to explore two interventions to help individuals to increase their savings balances. First, we design a financial product based on the popular business correspondent model, which includes frequent reminders, assistance in account opening, and the setting of a six-month savings goal. Second, we measure the effectiveness of adding a peer monitoring component to this basic bundle and test whether the local social network can help to increase the penetration of the formal banking system. We ask whether having a monitor substitutes for a formal commitment device, whether individuals choose the most effective monitors, and moreover, whether some community members are better than others at encouraging financial capability. 

Author: Breza, E.  |  Chandrasekhar, A. 
Financial Decision: Total savings accumulated 
Year: 2014
Country: India 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Impact of Bank Accounts on Migrant Savings and Remittances: Evidence from a Field Experiment

We use a randomized field experiment to estimate the effect of having a United States bank account on Mexican migrants’ savings and remittances. With support from the Mexican Consulate and a local bank targeting Hispanic clientele, we randomly assigned assistance in obtaining a matrícula consular card, which we call “treatment.” This consulate-issued identification card is accepted by many U.S. financial institutions for the purpose of establishing identity for new accounts, and has little other use in the small U.S. city where we conduct the experiment. Treated migrants were 38 percentage points more likely to open a U.S. bank account, increased their savings as a share of income by 9 percentage points and decreased their remittances to Mexico as a share of income by 6 percentage points. There is heterogeneity of treatment effects by migrants’ reported degree of control over how their remittances are allocated in Mexico. Among migrants who report having no control (as opposed to shared or sole control), treatment causes a higher take-up of U.S. bank accounts, a larger increase in total savings, a shift away from Mexico savings toward U.S. savings, and an increase in income. These results suggest that extending bank access can raise savings in a low-income minority population. Additionally, they suggest that issues of control alter intrahousehold resource allocations and income, which rejects the unitary model and even the collective model for characterizing decision-making in these Mexican migrant households. 

Author: Chin, A.  |  Karkoviata, L.  |  Wilcox, N. 
Financial Decision: Enrolment  |  Payment amount 
Year: 2011
Country: United States 
Product Type: Savings account  |  Remittances 
Product Category: Savings  |  Payments 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

An Experiment on Information Use in College student Loan Decisions

There is ample concern that college students are making ill-informed student loan decisions with potentially negative consequences to themselves and the broader economy. This paper reports the results of a randomized field experiment in which college students are provided salient information about their borrowing choices. The setting is a large flagship public university in the Midwest, and the sample includes all nongraduating students who previously borrowed student loan money (~10,000 students). Half of the students received individually tailored letters with simplified information about future monthly payments, cumulative borrowing, and the typical borrowing of peers; the other half is the control group that received no additional information. There are at most modest effects of the letter overall, which suggests that information alone is not sufficient to drive systematically different borrowing choices among students. However, some key student subgroups changed their borrowing in response to the letter, particularly those with low GPAs. There is also evidence of intended (more contact with financial aid professionals) and unintended (lower Pell Grant receipt) consequences of the letter. 

Author: Darolia, R. 
Financial Decision: Enrolment  |  Selected loan amount 
Year: 2016
Country: United States 
Product Type: Student loan 
Product Category: Credit 
Intervention: Social norms 
Intervention Area: Client communication 

Mental Accounting and Mobile Banking: Can labelling an M-PESA account increase savings?

Working with a sample of vulnerable women in Kenya, we conduct a field experiment involving a savings intervention consisting of a labelled mobile banking (M-PESA) account, savings goal setting, and text message reminders. The effect of the intervention on savings is positive but imprecisely estimated. The intervention did lead to statistically significant increases in savings for those who report having problems saving due to spending on temptation goods. In addition, individuals with temptation constraints to savings spent less on temptation goods as a result of the intervention. We provide suggestive evidence that the increase in savings for those facing temptation constraints was most likely due to the labelled M-PESA account. This suggests that the labelling of a mobile banking savings account may induce mental accounting and can relax temptation constraints to savings. 

Author: Dizon, F.  |  Gong, E.  |  Jones, K. 
Financial Decision: Total savings accumulated 
Year: 2015
Country: Kenya 
Product Type: Mobile account 
Product Category: Savings 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Group versus individual liability: A field experiment in the Philippines

Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which grew with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group liability claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor and enforce each other’s loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender’s overall profitability and the poor’s access to financial markets. We worked with a bank in the Philippines to conduct a field experiment to examine these issues. Working with 169 previously formed group liability centers of approximately twenty women, we converted half to individual-liability centers (treatment) and kept the other half as-is with group liability (control). The weekly group meetings still occurred; only the group liability is removed. After one year, we find no increase in default and we find higher outreach due to more new clients joining the treatment groups. 

Author: Giné, X.  |  Karlan, D. 
Financial Decision: Enrolment 
Year: 2007
Country: Philippines 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Social norms 
Intervention Area: Client communication 

Endowment Effects and Usage of Financial Products: Evidence from Malawi

Savings account holders are significantly less likely to switch to another, cheaper account, compared to new clients given a choice between the two accounts. While 42 percent of account holders retained their original, expensive accounts, none of the new clients chose the expensive accounts. We exploit previous experimental variation in account usage and find that account holders that used their account more frequently are more likely to switch. This suggests that induced familiarity with the account can mitigate the endowment effect. 

Author: Giné, X.  |  Goldberg, J. 
Financial Decision: Enrolment 
Year: 2017
Country: Malawi 
Product Type: Savings account 
Product Category: Savings 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Informing and Improving Retirement Saving Performance using Behavioural Economics Theory-driven User Interfaces

Can human-computer interaction help people make informed and effective decisions about their retirement savings? We applied the behavioral economic theories of endowment effect and loss aversion to the design of novel retirement saving user interfaces. To examine effectiveness, we conducted an experiment in which 487 participants were exposed to one of three experimental user interface designs of a retirement saving simulator, representing endowment effect, loss aversion and control. Users made 34 yearly asset allocation decisions. We found that designs informed by the endowment effect and loss aversion theories and which communicated to savers the long-term implications of their asset allocation choices, led users to adjust their behavior, make larger and more frequent asset allocation changes, and achieve their saving goals more effectively. 

Author: Gunaratne, J.  |  Nov, O. 
Financial Decision: Savings goal reached 
Year: 2015
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

Saving More in Groups: Field Experimental Evidence from Chile

We test the impact of a peer group savings program on precautionary savings, through two randomized field experiments among 2,687 microcredit clients. The first experiment finds that the Peer Group Treatment, which combines public goal setting, monitoring in the group, and non-financial rewards, increases savings in a new savings account significantly. The number of deposits grows 3.7-fold, and the average savings balance almost doubles. In contrast, a more classical measure, a substantially increased interest rate, has no effect for most participants and raises the savings balance only for the very top of the distribution. A second experiment, conducted a year later, tests an alternative delivery mechanism and shows that effects of similar size can be achieved through feedback text messages, without meetings, rewards, or peer pressure. 

Author: Kast, F.  |  Meier, S.  |  Pomeranz, D. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2016
Country: Chile 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices  |  Prize-linked 
Intervention Area: Commitment features  |  Pricing and financial benefits 

Saving More in Groups: Field Experimental Evidence from Chile

We test the impact of a peer group savings program on precautionary savings, through two randomized field experiments among 2,687 microcredit clients. The first experiment finds that the Peer Group Treatment, which combines public goal setting, monitoring in the group, and non-financial rewards, increases savings in a new savings account significantly. The number of deposits grows 3.7-fold, and the average savings balance almost doubles. In contrast, a more classical measure, a substantially increased interest rate, has no effect for most participants and raises the savings balance only for the very top of the distribution. A second experiment, conducted a year later, tests an alternative delivery mechanism and shows that effects of similar size can be achieved through feedback text messages, without meetings, rewards, or peer pressure. 

Author: Kast, F.  |  Meier, S.  |  Pomeranz, D. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2016
Country: Chile 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

The Cost of Convenience? Transaction Costs, Bargaining Power, and Savings Account Use in Kenya

Individuals across the world often use high-transaction-cost savings devices, even when lower-cost technologies are available. I study this phenomenon via a field experiment where access to ATM cards was randomly assigned to 1,100 newly opened bank accounts in rural Kenya. These cards reduced withdrawal fees by over 50 percent. While the cards increased overall account use, the positive treatment effect is entirely driven by joint and male-owned accounts – in contrast, the treatment had no impact on use of women’s accounts. I find evidence that one important driver of this difference is intrahousehold concerns. 

Author: Schaner, S. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Kenya 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults  |  Discounting 
Intervention Area: Client choice architecture  |  Pricing and financial benefits 

The Cost of Anchoring on Credit-Card Minimum Repayments

About three quarters of credit card accounts attract interest charges. In the US, credit card debt is $951.7 billion of a total of $2,539.7 billion of consumer credit. In the UK, credit card debt is £55.1 billion of £174.4 billion of consumer credit. The 2005 US Bankruptcy Abuse Prevention and Consumer Protection Act and the 2003 UK Treasury Select Committee's report require lenders to collect a minimum payment of at least the interest accrued each month. Thus people are protected from the effects of compounding interest. But including minimum payment information has an unintended negative effect, because minimum payments act as psychological anchors. In anchoring, arbitrary and irrelevant numbers bias people's judgments (Tversky & Kahneman, 1974) and decisions (Ariely, Lowenstein, & Prelec, 2003), even when participants know that anchors are random or implausible (Chapman & Johnson, 1994). Meaningful anchors also bias judgments (e.g., Mussweiler & Strack, 2000). If decisions about credit card repayments are anchored upon minimum payment information then people will repay less than they otherwise would and incur greater interest charges (Thaler & Sunstein, 2008, independently made the same suggestion). Consistent with this hypothesis I find a strong correlation between minimum payment size and actual repayment size in a survey of credit card payments. A subsequent experiment demonstrates a causal link.  

Author: Stewart, N. 
Financial Decision: Selected repayment contribution 
Year: 2009
Country: United Kingdom 
Product Type: Credit card 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

Examining the effect of expressing a quantitative goal on consumer savings

We examine the effectiveness of implementation intention plans for achieving regular savings with small-scale, exploratory field research. A series of surveys required participants in a community-based savings campaign to form implementation intentions concerning timing, mode, amount, and source of income for savings during the next month. Baseline and two follow-up responses from treatment and control groups showed implementation plans that require individuals to express discretionary quantitative savings goals are less effective than those that require a generalized, nonquantitative commitment to save. This result has implications for savings programs, many of which consider an expressed quantitative goal to be crucial for success. 

Author: Loibl, C.  |  Scharff, R. L. 
Financial Decision: Savings goal reached 
Year: 2010
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Implementation intention 
Intervention Area: Commitment features 

Prices or knowledge? What drives demand for financial services in emerging markets?

Financial development is critical for growth, but its micro-determinants are not understood. We test leading theories of low demand for financial services in emerging markets, combining novel survey evidence from Indonesia and India with experiment. We find a strong correlation between financial literacy and behaviour. However, a financial education program has modest effects, increasing demand bank accounts only for those with limited education or financial literacy. In contrast, small subsidies greatly increase demand. A follow-up survey confirms these findings, demonstrating that newly opened accounts remain open and in use 2 years after intervention. 

Author: Cole, S.  |  Sampson, T.  |  Zia, B. 
Financial Decision: Enrolment 
Year: 2011
Country: India 
Product Type: Savings account 
Product Category: Savings 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines

We designed a commitment savings product for a Philippine bank and implemented it using a randomized control methodology. The savings product was intended for individuals who want to commit now to restrict access to their savings, and who were sophisticated enough to engage in such a mechanism. We conducted a baseline survey on 1777 existing or former clients of a bank. One month later, we offered the commitment product to a randomly chosen subset of 710 clients; 202 (28.4 percent) accepted the offer and opened the account. In the baseline survey, we asked hypothetical time discounting questions. Women who exhibited a lower discount rate for future relative to current trade-offs, and hence potentially have a preference for commitment, were indeed significantly more likely to open the commitment savings account. After twelve months, average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group. We conclude that the savings response represents a lasting change in savings, and not merely a short-term response to a new product. 

Author: Ashraf, N.  |  Karlan, D.  |  Yin, W. 
Financial Decision: Total savings accumulated 
Year: 2006
Country: Philippines 
Product Type: Lock box 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines

We designed a commitment savings product for a Philippine bank and implemented it using a randomized control methodology. The savings product was intended for individuals who want to commit now to restrict access to their savings, and who were sophisticated enough to engage in such a mechanism. We conducted a baseline survey on 1777 existing or former clients of a bank. One month later, we offered the commitment product to a randomly chosen subset of 710 clients; 202 (28.4 percent) accepted the offer and opened the account. In the baseline survey, we asked hypothetical time discounting questions. Women who exhibited a lower discount rate for future relative to current trade-offs, and hence potentially have a preference for commitment, were indeed significantly more likely to open the commitment savings account. After twelve months, average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group. We conclude that the savings response represents a lasting change in savings, and not merely a short-term response to a new product. 

Author: Ashraf, N.  |  Karlan, D.  |  Yin, W. 
Financial Decision: Enrolment 
Year: 2006
Country: Philippines 
Product Type: Lock box 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Commitment Savings Products: Theory and Evidence

Recent literature promotes commitment products as a new remedy for overcoming self-control problems and savings constraints. This thesis argues that the effects of commitment may be very heterogeneous, and highlights the mechanisms under which commitment may reduce welfare, rather than increase it. It also examines a new type of commitment contract: A formal commitment savings account with fixed regular instalments, introduced in a developing-country context. Chapter 1 proposes that the popularity of costly or inflexible savings mechanisms as well as of high-interest consumption loans may represent a demand for commitment to fixed instalments. Using a newly collected dataset from Bangladesh, it shows that the introduction of a regular-instalment commitment savings product was associated with a large increase in average savings contributions. The theoretical framework in Chapter 2 highlights the potential heterogeneity behind such positive average effects: Commitment improves welfare when agents have full knowledge of their preferences, including biases and inconsistencies. If agents are imperfectly informed about their preferences, they may choose ill-suited commitment contracts. I formally show that commitment contracts can reduce welfare if the commitment is not strong enough to discipline the agent, resulting in costly default. I further show that such insufficient commitment contracts are likely to be selected by time-inconsistent agents with ‘partially sophisticated’ preferences: Agents who are neither completely unaware nor fully aware of their time-inconsistency, but anywhere in between those two extremes. Chapter 3 describes a randomised experiment in the Philippines: I designed and introduced a regular-instalment commitment savings product, intended to improve on pure withdrawal-restriction products by mimicking the fixed-instalment nature of loan repayment contracts. Individuals from a general low-income population were randomly offered to take up the product, and were asked to choose the stakes of the contract (in the form of a default penalty) themselves. The result is that a majority appears to choose a harmful contract: While the intent-to-treat effect on bank savings for individuals assigned to the treatment group is four times that of a withdrawal-restriction product (offered as a control treatment), 55 percent of clients default on their savings contract. The explanation most strongly supported by the data is that the chosen stakes were too low (the commitment was too weak) to overcome clients’ self-control problems. Moreover, both take-up and default are negatively predicted by measures of sophisticated hyperbolic discounting, suggesting that those who are fully aware of their bias realise the commitment is too weak for them, and avoid the product. The study suggests that research on new commitment products should carefully consider the risk of adverse welfare effects, particularly for naïve and partially sophisticated hyperbolic discounters. 

Author: Hofmann, A. 
Financial Decision: Total savings accumulated 
Year: 2014
Country: Bangladesh 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

The ABCs of Financial Literacy–Experimental Evidence on Attitudes, Behavior and Cognitive Biases

This paper uses a large-scale field experiment in India to study attitudinal, behavioural, and cognitive constraints that stymie the link between financial education and financial outcomes. The study complements financial education with (I) participant classroom motivation with pay for performance on a knowledge test, (ii) intensity of treatment with personalized financial counselling, and (iii) behavioural nudges with financial goal setting. The analysis finds no impact of pay for performance but significant effects of both counselling and goal setting on real financial outcomes. These results identify important com­plements to financial education that can bridge the gap between financial knowledge and financial behaviour change. 

Author: Carpena, F.  |  Cole, S.  |  Shapiro, J.  |  Zia, B. 
Financial Decision: Enrolment 
Year: 2011
Country: India 
Product Type: Life insurance  |  Savings account  |  Loan 
Product Category: Insurance  |  Savings  |  Credit 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Harnessing Emotional Connections to Improve Financial Decisions

This paper exploits the emotional connections and viewer attentiveness of mainstream media to evaluate the economic impact of financial education messages on debt management delivered through a popular television soap opera in South Africa. The study uses a symmetric encouragement design to compare outcomes of individuals who were randomly assigned to watch a soap opera with financial messages, “Scandal!” to those of individuals who were invited to watch a similar soap opera without financial messages, “Muvhango.” Both shows overlapped in evening primetime and had similar past viewership profiles. The financial storyline spanned two months and featured one of the leading characters of the show borrowing excessively and irresponsibly through hire-purchase, gambling, and ending up in financial distress; and eventually seeking help to find her way out. Two intermediate and one final follow-up surveys were conducted as part of the study. The analysis finds individuals assigned to watch Scandal had significantly higher financial knowledge of the issues highlighted in the soap opera storyline, in particular messages delivered by the leading character. On behavior, Scandal viewers were almost twice more likely to borrow from formal sources, less likely to engage in gambling, and less prone to enter hire purchase agreements. Messages promoting a national debt mediation helpline delivered by an external character did not sustain traction beyond immediate interest. Three qualitative focus groups highlight the importance of emotional connections with the leading character in motivating behavior change. 

Author: Berg, G.  |  Zia, B. 
Financial Decision: Enrolment 
Year: 2013
Country: South Africa 
Product Type: Loan 
Product Category: Credit 
Intervention: Affect 
Intervention Area: Client communication 

Commitments to Save: A Field Experiment in Rural Malawi

This paper reports the results of a field experiment that randomly assigned smallholder cash crop farmers formal savings accounts. In collaboration with a microfinance institution in Malawi, the authors tested two primary treatments, offering either: 1) “ordinary” accounts, or 2) both ordinary and “commitment” accounts. Commitment accounts allowed customers to restrict access to their own funds until a future date of their choosing. A control group was not offered any account but was tracked alongside the treatment groups. Only the commitment treatment had statistically significant effects on subsequent outcomes. The effects were positive and large on deposits and withdrawals immediately prior to the next planting season, agricultural input use in that planting, crop sales from the subsequent harvest, and household expenditures in the period after harvest. Across the set of key outcomes, the commitment savings treatment had larger effects than the ordinary savings treatment. Additional evidence suggests that the positive impacts of commitment derive from keeping funds from being shared with one’s social network. 

Author: Brune, L.  |  Giné, X.  |  Goldberg, J.  |  Yang, D. 
Financial Decision: Total savings accumulated 
Year: 2011
Country: Malawi 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Savings defaults and payment delays for cash transfers: Field experimental evidence from Malawi

Financial products and transfer schemes are typically designed to improve welfare by helping individuals follow through on their intertemporal plans. We implement an artefactual field experiment in Malawi to test the ability of households to manage a cash windfall by varying whether 474 households receive a payment in cash or through direct deposit into pre-established accounts at a local bank. Payments are made immediately, with one day delay, or with eight days delay. Defaulting the payments into savings accounts leads to higher net deposits into bank accounts, an effect that persists for a number of weeks afterwards. However, neither savings defaults nor payment delays affect the amount or composition of spending, suggesting that households manage cash effectively without the use of formal financial products. 

Author: Brune, L.  |  Giné, X.  |  Goldberg, J.  |  Yang, D. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Malawi 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Are Good Intentions Enough? Encouraging Regular Savings Through Implementation Intentions

This study concerns the implications of Gollwitzer’s (1993) concept of implementation intentions. Intention, attitude, subjective norm, perceived behavioral control and past behavior from for Ajzen’s (1985) Theory of Planned Behavior were used to measure the motivation of participants’ of an “America Saves” campaign to save regularly prior to an intervention in which participants made implementation intentions concerning when, how, how much, and from what source of income they will deposit money into their savings accounts in the next month. The study suggests the following testable hypotheses: Participants who form implementation intentions concerning when, how, how much, and from what source of income they will deposit money into their America Saves account will be more likely to deposit money into their America Saves account than participants who do not form such intentions. Participants who form implementation intentions will save in a manner consistent with their intentions. 

Author: Loibl, C.  |  Scharff, R. L. 
Financial Decision: Savings goal reached 
Year: 2007
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Implementation intention 
Intervention Area: Commitment features 

Bancarizing with credit cards: Experimental evidence on interest rates and minimum payments elasticities for new clients

We study the bancarization of marginal borrowers using credit cards and document that this process is difficult: default risk is substantial, returns heterogeneous, and account closings common. We also take advantage of a randomized control trial that varied interest rates and minimum payments in a very wide range. Against our hypothesis, we find that default risk is very insensitive to (randomized) large changes in interest rates and minimum payments. This could imply that regulating these contract terms may not necessarily "protect" consumers against default and that moral hazard in this market is negligible on average. 

Author: Castellanos, S.  |  Hernandez, D.  |  Seira, E. 
Financial Decision: Repayment of outstanding loan 
Year: 2015
Country: Mexico 
Product Type: Credit card 
Product Category: Credit 
Intervention: Standard incentives  |  Anchoring 
Intervention Area: Pricing and financial benefits  |  Client communication 

Banking the Poor: Evidence from a Savings Field Experiment in Malawi

The poor often save through informal methods outside of the financial systems of developing countries, restricting the extent to which their savings can help fuel growth. Moreover, a growing number of studies show large positive effects on outcomes among the poor from possessing a savings account. However, the vast majority of adults in the developing world do not have even a basic account. This paper uses a randomized field experiment in Malawi with over 2,000 households to examine an innovative approach to spur financial inclusion. The results show that periodic informational visits to a village can sharply increase take-up and use of savings accounts. The impact on adoption probability depends on a few key household characteristics, its effect the strongest for households in middle wealth categories, with educated heads, living outside the immediate vicinity of the bank. Results show account usage is robust among induced adopters. The randomly assigned information intervention is then used to identify sharp causal impacts of savings adoption on agricultural production inputs, crop income, and food consumption among farming households in poor rural areas. These results help extend a fast-growing literature on formal savings by examining a novel and effective method to encourage uptake and better understand the impact of savings accounts among poor farmers – the largest occupational group among the poor. 

Author: Flory, J. 
Financial Decision: Enrolment  |  Enrolment 
Year: 2016
Country: Malawi 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Competition as a savings incentive: A field experiment at a homeless shelter

This paper describes a randomized field experiment testing the impact of a savings competition on the behavior of homeless individuals staying at a transitional shelter. When monetary prizes were offered for achieving the highest saving rates within a particular month, average savings increased by $80 (a 30% increase in savings rate) while income and attendance at case management meetings remained unchanged. However, repeating the competition in the following month had no effect because responsive savers selected out of the shelter after the first month. In summary, while a savings competition can increase savings in the short run, its effect may be limited to the intensive margin and may diminish with repetition. 

Author: Linardi, S.  |  Tanaka, T. 
Financial Decision: Contribution level  |  Total savings accumulated 
Year: 2012
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Prize-linked 
Intervention Area: Pricing and financial benefits 

Effects of a Tax-Time Savings Intervention on Use of Alternative Financial Services among Lower-Income Households

Alternative financial services (AFS) such as check cashing and payday loans may help unbanked households meet transaction and credit needs, yet often at a very high price. Saving tax refunds can help low- and moderate-income (LMI) households build emergency savings as a way to reduce dependence on AFS and cope effectively with irregular cash flows and financial shocks. 

Author: Despard, M.  |  Grinstein-Weiss, M.  |  Guo, S.  |  Raghavan, R.  |  Ren, C. 
Financial Decision: Total savings accumulated 
Year: 2017
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Anchoring  |  Reminders 
Intervention Area: Client communication 

Financial Illiteracy and Pension Contributions: A Field Experiment on Compound Interest in China

This paper uses a field experiment to study the relationship between financial literacy and retirement savings in China. When the Chinese government launched a highly subsidized pension system in rural areas in 2009, 73% of households chose to save at a level that is lower than that implied by a benchmark life-cycle model. We test to what extent the low contribution level is due to a fundamental misunderstanding of the nature of compound interest. In a field experiment with more than 1000 Chinese households, we randomly assigned some households to a financial education treatment, emphasizing the concept of compound interest. This treatment increased the pension contribution by roughly 40%. The increase accounts for 51% of the gap between contribution levels in the Control group and those implied by the benchmark model. To pinpoint mechanisms, we elicited financial literacy after the intervention, and added a third group in which we explain the pension benefit in general. We find that the neglect of compound interest is correlated with low contributions to the pension plans in the control group, and that financial education about compound interest does help households partially correct their erroneous understanding of compound interest. Moreover, explaining compound interest increases their ability to translate benefits into their own situation. Welfare analysis suggests that financial education increases total welfare, although the fact that the treatment effects are heterogeneous implies that some households end up saving more than the level implied by the benchmark model. 

Author: Song, C. 
Financial Decision: Contribution level  |  Enrolment 
Year: 2012
Country: China 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Framing Goals to Influence Personal Savings: The Role of Specificity and Construal Level

In four studies, we show that consumers’ savings can be increased or decreased merely by changing the way consumers think about their saving goals. Consumers can (a) either specify or not specify an exact amount to save (goal specificity), and (b) they can focus on either how to save, or why to save (construal level). We find that specific goals help consumers save more when the saving goal is construed at a high level, but non-specific goals help consumers save more when the saving goal is construed at a low level. We obtain the same pattern of results with anticipated saving success, goal commitment, and most importantly, actual savings. Mediation analyses reveal that specific (vs. non-specific) goals are perceived to be more important under high-level construal, and more difficult under low-level construal. 

Author: Cheema, A.  |  Ulkumen, G. 
Financial Decision: Total savings accumulated 
Year: 2011
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Identification Strategy: A Field Experiment on Borrower Responses to Fingerprinting for Loan Enforcement

How do borrowers respond to improvements a lender’s ability to punish defaulters? We implemented a randomized field experiment in Malawi examining the impact of fingerprinting of borrowers, which improves the lender’s ability to withhold future loans from individuals who have previously defaulted. Study participants were smallholder farmers applying for agricultural input loans, and were randomly allocated to either: 1) a control group, or 2) a treatment group that was fingerprinted as part of the loan application. Both treatment and control groups were given a presentation on the importance of credit history in ensuring future access to credit. For the subgroup of farmers with the highest ex ante default risk, fingerprinting led to substantially higher repayment rates. By contrast, fingerprinting had no impact on repayment for farmers with low ex ante default risk. Higher repayment for the high-default-risk subgroup is due to reductions in adverse selection (smaller loan sizes) and lower moral hazard (more intensive input application yielding higher farm profits). 

Author: Giné, X.  |  Goldberg, J.  |  Yang, D. 
Financial Decision: Enrolment  |  Repayment of outstanding loan  |  Selected loan amount 
Year: 2009
Country: Malawi 
Product Type: Agricultural loan 
Product Category: Credit 
Intervention: Self-identification priming 
Intervention Area: Commitment features 

Improving Retirement Savings Through Anchoring

Some have argued that there is a “retirement savings crisis” (Munnell, Webb, & Golub-Sass, 2007). Accordingly, a number of approaches have been attempted to increase savings in defined contribution plans, the most common type of retirement savings plan. One approach that has shown promise is using behavioral economics principles to influence savings behaviors. Realizing that we are not purely rational consumers who make sound financial decisions based solely on numbers, behavioral economics focuses on the ways that internal and external factors influence human decisions. However, current approaches have been only moderately successful in increasing savings, with that success coming at a great expense to the employer. There is a need for simple, inexpensive approaches to getting people to save more for retirement. One potential behavioral economics focused approach that has not been attempted is to use the phenomenon of anchoring and adjustment to influence savings decisions. Anchoring refers to the way people make judgments of amount. They anchor on some initial value, an internal or external cue, and then adjust from it. Three experiments explore how anchoring can be used to influence retirement savings decisions. The first shows that the match threshold of a savings plan influences the amount people contribute to their savings. The second shows that, keeping plan attributes constant, the presentation of a high anchor value induces people to save more. The last explores some potentially fruitful uses of anchoring and adjustment theory that can be exploited when using an electronic enrolment form. 

Author: Hulsey, L. 
Financial Decision: Contribution level 
Year: 2012
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults  |  Prompted choice  |  Anchoring 
Intervention Area: Client choice architecture  |  Client communication 

Incentives for Loan Repayments: Evidence from a Randomized Field Study

This field experiment tests an innovative approach for helping automobile loan borrowers make their loan payments on time. Borrowers were randomly assigned to a loan with an interest rate reduction after three on-time payments; borrowers assigned to this loan show fewer late payments compared to a control group. While the financial incentive of the interest rate reduction was small, the offer of a rate reduction appears to result in borrowers attending to due dates. This result illustrates that lenders can use simple mechanisms to encourage more positive repayment patterns among borrowers with a history of late payments. 

Author: Collins, J.  |  Leah, G.  |  Syndor, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2017
Country: United States 
Product Type: Motor vehicle loan 
Product Category: Credit 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Migrant Remittances and Information Flows

Do information flows matter for remittance behavior? We design and implement a randomized control trial to quantitatively assess the role of communication between migrants and their contacts abroad on the extent and value of remittance flows. In the experiment, a random sample of 1,500 migrants residing in Ireland was offered the possibility of contacting their networks outside the host country for free over a varying number of months. We find a sizable, positive impact of our intervention on the value of migrant remittances sent. Our results exclude that the remittance effect we identify is a simple substitution effect. Instead, our analysis points to this effect being a likely result of improved information via factors such as better migrant control over remittance use, enhanced trust in remittance channels due to experience sharing, or increased remittance recipients’ social pressure on migrants. 

Author: Batista, C.  |  Narciso, G. 
Financial Decision: Payment amount 
Year: 2013
Country: Ireland 
Product Type: Remittances 
Product Category: Payments 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Mobile-izing savings with automatic contributions: Experimental evidence on dynamic inconsistency and the default effect in Afghanistan

Through a field experiment in Afghanistan, we show that default enrolment in payroll deductions increases rates of savings by 40 percentage points, and that this increase is driven by present-biased preferences. Working with Afghanistan’s primary mobile phone operator, we designed and deployed a new mobile phone-based automatic payroll deduction system. We find that employees initially assigned a default contribution rate of 5% are 40 percentage points more likely to contribute to the account 6 months later than individuals assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. We also find evidence of habit formation: default enrolment increases the likelihood that employees continue to save after the trial ended, and increases employees’ self-reported interest in saving and sense of financial security. To understand why default enrolment increases participation, we conducted several interventions designed to induce employees to make a non-default election, and separately measured employee time preferences. Ruling out several competing explanations, we find evidence that the default effect is driven largely by present-biased preferences that cause the employee to procrastinate in making a non-default election. 

Author: Blumenstock, J.  |  Callen, M.  |  Ghani, T. 
Financial Decision: Contribution level  |  Total savings accumulated 
Year: 2016
Country: Afghanistan 
Product Type: Mobile account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults  |  Standard incentives 
Intervention Area: Client choice architecture  |  Pricing and financial benefits 

Moral Incentives in Credit Card Debt Repayment: Evidence from a Field Experiment

We study the role of morality in debt repayment using an experiment with credit card customers of a large Islamic bank in Indonesia. In our main treatment, clients receive a text message stating that “non-repayment of debts by someone who is able to repay is an injustice.” This increases the share of customers meeting their minimum payment by 15%, which is more than the effect of substantial financial incentives. Additional treatments help understand the underlying mechanisms and rule out competing explanations, such as reminder effects, priming religion, signalling the lender’s commitment to debt collection, and provision of new information. 

Author: Bursztyn, L.  |  Fiorin, S.  |  Gottlieb, D.  |  Kanz, M. 
Financial Decision: Repayment of outstanding loan 
Year: 2016
Country: Indonesia 
Product Type: Credit card 
Product Category: Credit 
Intervention: Standard incentives  |  Messenger  |  Social norms 
Intervention Area: Pricing and financial benefits  |  Client communication 

Nudging Retirement Savings: A Field Experiment on Supplemental Plan

Although supplemental saving plans can be an important part of an individual's financial security in retirement, contribution rates remain low, particularly among those with lower salaries and less education. We report findings from a field experiment that distributed an informational nudge containing information on key aspects of the employer-provided supplemental saving plans of older public employees in North Carolina. Among workers participating in a supplemental plan, individuals who received an informational nudge increased their contributions in the months following the intervention relative to the control group. Moreover, those that received the nudge reported in a subsequent survey that they were more likely to have developed a retirement plan and report more confidence in their retirement preparedness. In contrast, individuals who were not enrolled in a retirement saving plan were not moved to begin contributing to a supplemental plan. 

Author: Clark, R.  |  Hammond, R.  |  Khalaf, C.  |  Morrill, M. 
Financial Decision: Contribution level 
Year: 2017
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed  |  Discounting  |  Affect 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

Promoting Savings at Tax Time through a Video-Based Solution-Focused Brief Coaching Intervention

Most low and moderate-income households in the United States receive large lump sums of money each year when they file their federal income tax return. For many low to moderate-income households, the tax refund is one of the single largest payments received all year and may not be completely allocated to the household’s routine spending patterns because of its once-a-year timing. These factors make tax-time savings programs attractive interventions that could lead to substantial increases in the amount of savings and financial stability among low and moderate-income households. 

Author: Kunovskaya, I.  |  Palmer, L.  |  Pichot, T. 
Financial Decision: Contribution level  |  Total savings accumulated 
Year: 2016
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Discounting 
Intervention Area: Commitment features  |  Pricing and financial benefits 

Remittances and the Problem of Control: A Field Experiment Among Migrants from El Salvador

While remittance flows to developing countries are very large, it is unknown whether migrants desire more control over how remittances are used. This research uses a randomized field experiment to investigate the importance of migrant control over the use of remittances. In partnership with a Salvadoran bank, we offered US-based migrants from El Salvador bank accounts in their home country into which they could send remittances. We randomly varied migrant control over El Salvador-based savings by offering different types of accounts across treatment groups. Migrants offered the greatest degree of control over savings accumulated the most savings at the partner bank, compared to others offered less or no control over savings. Effects of this treatment on savings are concentrated among migrants who expressed demand for control over remittances in the baseline survey. We also find positive spillovers of our savings intervention in the form of increased savings at other banks (specifically, banks in the U.S.). We interpret the effects we find as arising from the joint effect of the bank account offers and the marketing pitch made to study participants by our project staff. 

Author: Ashraf, N.  |  Yang, D.  |  Aycinena, C.  |  Martínez, C. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2011
Country: El Salvador 
Product Type: Savings account 
Product Category: Savings 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

Repayment Flexibility in Microfinance Contracts: Theory and Experimental Evidence on Take-Up and Selection

This paper studies the impact of introducing repayment flexibility in microfinance contracts. I build an adverse selection model that predicts the existence of a separating equilibrium where lenders are able to achieve higher profits by simultaneously offering a rigid and a flexible repayment schedule, instead of just a rigid contract. Lab-in-the field games with Indian microentrepreneurs confirm the model predictions. I offer subjects both a flexible and a rigid repayment schedule and exogenously vary the price of the flexible schedule. I find that high-revenues borrowers are more likely to take up the flexible schedule than low-revenues ones, and even more so when the flexible schedule is more expensive than the rigid one. Risk-averse borrowers, on the contrary, are more likely to stick to the rigid contract when this is cheaper than the flexible contract. The paper thus indicates that lenders should offer a menu of contracts where the flexible and the rigid contract are provided simultaneously, at different prices. Back-of-the-envelope calculations indeed suggest that this mixed contract is more profitable than the standard, rigid microfinance contract. 

Author: Barboni, G. 
Financial Decision: Enrolment 
Year: 2017
Country: India 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Savings, Subsidies, and Technology Adoption: Field Experimental Evidence from Mozambique

We investigate the impacts of subsidies for technology adoption, and how savings constraints affect subsidy impacts. In a theoretical model in which risk-averse households face liquidity constraints as well as incomplete insurance, alleviating savings constraints could promote persistence of technology adoption over time (dynamic enhancement), or could instead reduce technology investment by encouraging savings accumulation (dynamic substitution). We implemented a field experiment in rural Mozambique, randomly assigning households one-time subsidies for adopting modern agricultural technology (chiefly fertilizer). Entire localities were later randomly assigned programs facilitating formal savings. In localities with no savings program, subsidy recipients raise their fertilizer use in the subsidized season and for two subsequent unsubsidized seasons. By contrast, in savings-program localities, subsidy impacts on fertilizer use do not persist: households shift resources away from fertilizer, instead accumulating savings in formal bank accounts. The savings programs also appear to improve household ability to cope with risk. These patterns are consistent with the theoretical case of dynamic substitution of subsidies; demand for self-insurance is so high that households scale back technology adoption so as to accumulate savings buffer stocks. 

Author: Yang, D.  |  Carter, M.  |  Laajaj, R. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Mozambique 
Product Type: Savings account 
Product Category: Savings 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

Self control and commitment: can decreasing the liquidity of a savings account increase deposits?

If individuals have self-control problems, they may take up commitment contracts that restrict their spending. We experimentally investigate how contract design affects the demand for commitment contracts. Each participant divides money between a liquid account, which permits unrestricted withdrawals, and a commitment account with withdrawal restrictions that are randomized across participants. When the two accounts pay the same interest rate, the most illiquid commitment account attracts more money than any of the other commitment accounts. We show theoretically that this pattern is consistent with the presence of sophisticated present-biased agents, who prefer more illiquid commitment accounts even if they are subject to uninsurable marginal utility shocks drawn from a broad class of distributions. When the commitment account pays a higher interest rate than the liquid account, the relationship between illiquidity and deposits is flat, suggesting that agents without present bias and/or naïve present-biased agents are also present in our sample 

Author: Beshears, J. L.  |  Choi, J. J.  |  Laibson, D.  |  Madrian, B. C. 
Financial Decision: Contribution level 
Year: 2015
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices 
Intervention Area: Commitment features 

Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment

We experimentally test the impact of student loan “nudges” on community college students' borrowing decisions and subsequent educational attainment. We find that students are biased towards borrowing the amount listed in their financial aid award letters, even though this amount does not affect students’ choice sets. Students randomly assigned to receive a nonzero loan offer were 40 percent more likely to borrow than those who received a $0 loan offer. Neither fall nor spring enrolment was affected by loan offers, but students induced to borrow by a nonzero offer earned significantly more credits and higher GPAs. An additional $1000 in loans led to 0.9 additional credits earned and a 0.16 GPA increase in the first year. Given that nearly one quarter of U.S. college students are offered $0 in loan aid, our results indicate the potential to achieve large gains in educational attainment by reforming the choice architecture around borrowing 

Author: Marx, B.  |  Turner, M. 
Financial Decision: Enrolment  |  Selected loan amount 
Year: 2016
Country: United States 
Product Type: Student loan 
Product Category: Credit 
Intervention: Anchoring 
Intervention Area: Client communication 

Subsidies, Savings, and Information Spillovers: A Randomized Experiment in Mozambique

To understand decisions by poor households to save in formal banks, and the impacts thereof, we partnered with a formal bank and randomly assigned a variety of treatments to rural households in Mozambique. Formal savings appear to be a normal good: a treatment that persistently raises household income (an agricultural input subsidy) has sustained positive impacts on formal savings. A basic program of financial education also raises formal savings, but a savings match program (generous temporary interest rate subsidies at the partner bank) does not robustly magnify this impact. We also document an information externality: positive treatment spillovers in the form of higher savings at competitor banks. Taken together, these results are consistent with alleviation of information constraints, but not of access constraints on formal savings. All treatments have similar positive impacts on household consumption and total asset accumulation, so the basic financial education program (as the lowest-cost treatment) is the most cost-effective. The information externality provides a rationale for public subsidy or cross-bank collaboration in information provision related to formal savings. 

Author: Yang, D.  |  Carter, M.  |  Laajaj, R. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2014
Country: Mozambique 
Product Type: Savings account 
Product Category: Savings 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

The Impact of Credit Cards on Spending: A Field Experiment

In a field experiment, we measure the impact of payment with credit card as compared with cash on insurance company employees’ spending on lunch in a cafeteria. We exogenously changed some diners’ payment medium from cash to a credit card by giving them an incentive to pay with a credit card. Surprisingly, we find that credit cards do not increase spending. However, the use of credit cards has a differential impact on spending for revolvers (who carry debt) and convenience users (who do not): Revolvers spend less when induced to spend with a credit card, whereas convenience users display the opposite pattern. 

Author: Incekara-Hafalir, E.  |  Loewenstein, G. 
Financial Decision: Payment amount 
Year: 2009
Country: United States 
Product Type: Credit card 
Product Category: Credit 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

The Impact of Loan Modifications on Repayment, Bankruptcy, and Labor Supply: Evidence from a Randomized Experiment

This paper uses a randomized experiment and administrative tax and bankruptcy records to estimate the impact of loan modifications on subsequent outcomes. A large non-profit credit counselling organization and eleven unsecured creditors offered lower interest rates and longer repayment periods to a random subset of 80,000 distressed borrowers. Borrowers offered a lower interest rate were more likely to repay their debts and less likely to file for bankruptcy protection. For the most heavily indebted borrowers, lower interest rates also increased the probability of being employed. In contrast, there was little impact of a longer repayment period on debt repayment, bankruptcy, or employment. 

Author: Dobbie, W.  |  Song, J. 
Financial Decision: Repayment of outstanding loan 
Year: 2015
Country: United States 
Product Type: Other credit product 
Product Category: Credit 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

The Impact of Transaction Fees on Migrant Remittances: Evidence from a Field Experiment Among Migrants from El Salvador

The remittances that migrants send to their home countries are one of the largest international financial flows to the developing world. A common policy recommendation is that remittance transaction fees should be lowered. This paper provides the first empirical evidence on the causal impact of remittance transaction fees on remittance flows via a field experiment among migrants from El Salvador in the Washington D.C. area. In partnership with a local money transmitter, we randomly assigned migrants differently-sized discounts on remittance transaction fees. Reductions in remittance fees led to large increases in remittances sent to the migrant’s home country. A $1 reduction in fees led migrants to send $25 more remittances per month via our partner institution. Increases in remittances occurred via increases in the frequency of transactions, and not on funds sent per transaction. There is no evidence that this increase in remittances represents shifting of funds previously sent via other remittance channels, funds sent on behalf of others, or intertemporal substitution of funds that would have been sent later. 

Author: Yang, D.  |  Aycinena, D.  |  Martínez, C. 
Financial Decision: Payment amount 
Year: 2010
Country: United States 
Product Type: Remittances 
Product Category: Payments 
Intervention: Standard incentives 
Intervention Area: Pricing and financial benefits 

The SEED for Oklahoma Kids Experiment: Initial Account Opening and Savings

The SEED for Oklahoma Kids experiment (SEED OK) is a large-scale study of universal Child Development Accounts (CDAs) with randomly-selected new-born children in the state. SEED OK aims to investigate the policy innovation of giving every child an account at birth and test whether participation has an impact on family attitudes and behaviors, saving for the child, and child development outcomes. Participants in SEED OK were randomly assigned to a treatment group or a control group. 

Author: Clancy, M.  |  Kim, Y.  |  Nam, Y.  |  Sherraden, M.  |  Zager, R. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2010
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults  |  Standard incentives 
Intervention Area: Client choice architecture  |  Pricing and financial benefits 

You can pick your friends, but you need to watch them: Loan screening and enforcement in a referrals field experiment

We examine a randomized trial that allows separate identification of peer screening and enforcement of credit contracts. A South African micro lender offered half its clients a bonus for referring a friend who repaid a loan. For the remaining clients, the bonus was conditional on loan approval. After approval, the repayment incentive was removed from half the referrers in the first group and added for half those in the second. We find large enforcement effects, a $12 (100 Rand) incentive reduced default by 10 percentage points from a base of 20%. In contrast, we find no evidence of screening. 

Author: Karlan, D.  |  Zinman, J.  |  Bryan, G. 
Financial Decision: Repayment of outstanding loan 
Year: 2012
Country: South Africa 
Product Type: MFI loans 
Product Category: Credit 
Intervention: Social enforecement  |  Standard incentives 
Intervention Area: Commitment features  |  Pricing and financial benefits 

Using lotteries to encourage saving: Experimental evidence from Kenya

In this study, we evaluate the provision of lottery-linked deposit accounts (LLDA) – a savings scheme incorporating lottery-like payoffs to traditional savings accounts. We provide a mobile savings product to 311 informal residents in Nairobi, Kenya and observe account activity over a 60-day period. We find that respondents with LLDAs made 42% more deposits on average over the project period than respondents receiving a matched incentive. This increase in account activity is due to respondents making more deposits per day in order to enter the lottery. We do not, however, observe any effects due to the lottery incentive on amount deposited over the project period. We show that when presented with potential winnings from previous days, respondents with LLDAs increased self-reported gambling activity by 15%. Our results suggest that LLDAs are a promising tool to improve savings among the poor and that product design has considerable implications on gambling behavior. 

Author: Abraham, J.  |  Akbas, M.  |  Ariely, D.  |  Jang, C. 
Financial Decision: Frequency of deposits  |  Frequency of deposits  |  Total savings accumulated 
Year: 2016
Country: Kenya 
Product Type: Mobile account 
Product Category: Savings 
Intervention: Prize-linked  |  Loss or gain framing 
Intervention Area: Pricing and financial benefits  |  Client communication 

The role of choice architecture in promoting saving at tax time: Evidence from a large-scale field experiment

A large-scale field experiment (N = 646,116) from the Refund to Savings Initiative tested a choice architecture and persuasive messaging intervention that increased saving among low-moderate income (LMI) consumers by approximately 50% during tax refund time. Two follow-up experiments parsed components of the intervention. The first follow-up experiment (N = 569) tested the messaging and choice architecture interventions separately, finding that each can increase savings. A final follow-up experiment (N = 554) tested individual elements of the choice architecture intervention, demonstrating that mere mention of savings within choice options was not sufficient to increase saving, however, heavy emphasis of savings and making saving “frictionless” within choice options both effectively increased saving intentions. The final experiment also demonstrated that the choice architecture effect operates similarly for both LMI and non-LMI consumers 

Author: Despard, M.  |  Grinstein-Weiss, M.  |  Ariely, D.  |  Cryder, C.  |  Oliphant, J.  |  Perantie, D. C. 
Financial Decision: Total savings accumulated 
Year: 2017
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Choice set  |  Labelling/earmarking 
Intervention Area: Client choice architecture  |  Commitment features 

If You Are Going to Pay Within the Next 24 Hours, Press 1: Automatic Planning Prompt Reduces Credit Card Delinquency

People often form intentions but fail to follow through on them. Mounting evidence suggests that such intention-action gaps can be narrowed with prompts to make concrete plans about when, where, and how to act to achieve the intention. In this paper, we pushed the notion of plan-concreteness to test the efficacy of a prompt under a minimalist automated calling setting, where respondents were only prompted to indicate a narrower duration within which they intent to act. In a field experiment, this planning prompt significantly helped people to pay their past dues and get out of debt delinquency. These results suggest that minimalist automatic planning prompts are a scalable, cost-effective intervention 

Author: Ariely, D.  |  Mazar, N.  |  Mochon, D. 
Financial Decision: Repayment of outstanding loan 
Year: 2018
Country: United States 
Product Type: Credit card 
Product Category: Credit 
Intervention: Implementation intention  |  Reminders 
Intervention Area: Commitment features  |  Client communication 

Saving by Default: Evidence from a Field Experiment in Rural India

Worldwide, people are gaining access to a formal bank account, which allows account-based instead of cash payments. Based on a novel randomized control trial, we document that the payment method is an important determinant of savings behavior. In rural India, we study the effect on savings of allocating identical weekly payments on a bank account (treated) or in cash (control). The treatment impact is huge: savings increase by 110% within three months, and the effect is long-lasting. Villagers paid in cash do not save more in other assets, but increase consumption. Therefore, we infer that being paid on a bank account has a net positive impact on total savings. When we twist the design and start paying everyone in cash, savings and consumption patterns no longer differ between the treated and control. We interpret these findings as the outcome of the default option, and shed light on six plausible underlying mechanisms. 

Author: Somville, V.  |  Vandewalley, L. 
Financial Decision: Savings goal selected 
Year: 2016
Country: India 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Does Knowing Your FICO Score Change Financial Behavior? Evidence from a Field Experiment with Student Loan Borrowers

This paper evaluates the impact of providing access to an individual's FICO® Score on financial behavior. We conduct a field experiment with over 400,000 Sallie Mae student loan borrowers in which treatment group members received direct communications about score availability. Using administrative credit report data, we find that borrowers in the treatment group are less likely to have any payments past due, more likely to have at least one revolving credit account, and have higher FICO Scores after one year. Survey data find treatment group members were more likely to accurately report their own FICO Score; specifically, they were less likely to overestimate their score. These effects are particularly encouraging given the limited success of traditional higher cost financial education interventions 

Author: O' Brien, R. L.  |  Sussman, A. B.  |  Homonoff, T. 
Financial Decision: Enrolment  |  Repayment of outstanding loan 
Year: 2018
Country: United States 
Product Type: Loan 
Product Category: Credit 
Intervention: Affect  |  Reminders  |  Relative adjustment 
Intervention Area: Client communication 

Financial Education and Savings Behavior: Evidence from a Randomized Experiment among Low-Income Clients of Branchless Banking in India

Financial literacy programs are popular, despite limited evidence that they lead to significant changes in savings behavior. We experimentally test the impact of financial literacy training on clients of a branchless banking program that offers doorstep access to banking to low-income households. The intervention had significant impacts: total savings in the treatment group increased by 49% ($39) within a period of 1 year. The increase in savings is due in part to decreases in expenditures on temptation goods. These results suggest that financial education interventions can be successful in changing savings outcomes, although results may be very context specific. 

Author: Claderone, M.  |  Fiala, N.  |  Mulaj, F.  |  Sadhu, S.  |  Sarr, L. 
Financial Decision: Contribution level 
Year: 2018
Country: India 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

Cheap promises: Evidence from loan repayment pledges in an online experiment

Across domains, people struggle to follow through on their commitments. This can happen for many reasons, including dishonesty, forgetfulness, or insufficient intrinsic motivation. Social scientists have explored the reasons for persistent failures to follow through, suggesting that eliciting explicit promises can be an effective way to motivate action. This paper presents a field experiment that tests the effect of explicit promises, in the form of “honor pledges,” on loan repayment rates. The experiment was conducted with LendUp, an online lender, and targeted 4,883 first-time borrowers with the firm. Individuals were randomized into four groups, with the following experimental treatments: (1) having no honor pledge to complete (control); (2) signing a given honor pledge; (3) re-typing the same honor pledge as in (2) before signing; and (4) coming up with a personal honor pledge to type and sign. I also randomized whether or not borrowers were reminded of the honor pledge they signed prior to the repayment deadline. The results suggest that the honor pledge treatments had minimal impacts on repayment, and that reminders of the pledges were similarly ineffective. This suggests that borrowers who fail to repay loans do so not because of dishonesty or behavioral biases, but because they suffer from true financial hardship and are simply unable to repay. 

Author: Bhanot, S. P. 
Financial Decision: Repayment of outstanding loan 
Year: 2017
Country: United States 
Product Type: Short-term loan 
Product Category: Credit 
Intervention: Commitment devices  |  Reminders 
Intervention Area: Commitment features  |  Client communication 

Encouraging Consumers to Act at Renewal Evidence from Field Trials in the Home and Motor Insurance Markets

The majority of British home and motor insurance policies automatically renew annually, at a price chosen by the provider, unless consumers actively switch or negotiate. Auto-renewal can be beneficial to consumers for example by ensuring continuity of cover. However, the media, consumer groups and politicians have expressed concern that some consumers, often the elderly or vulnerable, pay high prices as a result of automatic renewal. In collaboration with one home insurer and two motor insurers, we conduct field trials to test the potential for improved renewal notices to encourage consumers to switch or negotiate their policy at renewal. We also use bespoke survey data linked to administrative data from a home and motor insurance provider as well as aggregated data on price levels from several other insurance providers. Aggregated data from three home insurance providers suggests that average premiums increase in the first five years until they plateau. Our survey evidence for a home insurer suggests that customers underestimate the benefits of shopping around and overestimate the amount of time it takes. The evidence is compatible with Gabaix and Laibson’s (2006) ‘shrouded equilibrium’ model, where consumers do not anticipate that they will purchase additional products at high prices when they are purchasing the original product (although we do not have evidence that firms are making overall excess profits). Our evidence for the motor insurance providers varies by insurer, with consumers showing fewer signs of inertia and some firms showing little evidence of price increases at renewal. We find that putting last year’s premium on renewal notices causes between 11% and 18% more consumers to switch or negotiate their home insurance policy. The effect is larger for consumers offered higher price increases at renewal. We find little evidence of price increases at renewal for customers at the two motor insurers and including last year’s premium has no effect. Other changes to renewal notices, including simplifying renewal notices, sending information leaflets, and sending reminders have little or no impact on consumer behaviour. 

Author: Ashraf, N.  |  Adams, P.  |  Baker, R.  |  Hunt, S.  |  Kelly, D. 
Financial Decision: Enrolment 
Year: 2015
Country: United Kingdom 
Product Type: Other insurance product 
Product Category: Insurance 
Intervention: Anchoring  |  Reminders 
Intervention Area: Client communication 

Selective Attention in Consumer Finance: Evidence from a Randomized Intervention in the Credit Card Market

In partnership with a Personal Finance Platform in Brazil, I implement a randomized intervention to measure the effect of reminders for timely payment of credit card bills. While I find a 13% reduction in the cost of late fees paid, 31% of the users that avoid credit card late payments, incur instead overdraft fees on their checking accounts. This leads to heterogeneous gains from the intervention with some users saving 15% in total fees paid, and others incurring increased fees of 5%. I interpret these results using theories of salience-driven selective attention, and argue that informational nudges may inflate the perceived importance of the target task. The results of this experiment suggest that when designing policy interventions, one size may not fit all, and targeting nudges to those who are more likely to benefit from them has the potential to significantly increase the gains from the intervention 

Author: Medina, P. C. 
Financial Decision: Repayment of outstanding loan 
Year: 2018
Country: Brazil 
Product Type: Credit card 
Product Category: Credit 
Intervention: Reminders 
Intervention Area: Client communication 

Insurance Contracts when Individuals "Greatly Value" Certainty: Results from a Field Experiment in Burkina Faso

In discussing the paradoxical violation of expected utility theory that now bears his name, Maurice Allais noted that individuals tend to “greatly value” payoffs that are certain. Allais' observation would seem to imply that people will undervalue insurance relative to the predictions of expected utility theory because as conventionally constructed, insurance offers an uncertain benefit in exchange for a certain cost that certainty-loving individuals will overvalue. Pursuing this logic, we implemented insurance games with cotton farmers in Burkina Faso. On average, farmer willingness to pay for insurance increases significantly when a premium rebate framing is used to render both costs and benefits of insurance uncertain. We show that the impact of the rebate frame on the willingness to pay for insurance is driven by those farmers who exhibit a well-defined discontinuous preference for certainty, a concept that we adapt from the u-v model of utility and measure with a novel behavioral experiment. Given that the potential impacts of insurance for small scale farmers are high, and yet demand for conventionally framed contracts is often low, the insights from this paper suggest welfare-enhancing ways of designing insurance for low-income farmers. download in pdf format (535 K) email paper  

Author: Carter, M.  |  Serfilippi, E.  |  Guirkinger, C. 
Financial Decision: Cover level selected 
Year: 2016
Country: Burkina Faso 
Product Type: Agricultural loan 
Product Category: Credit 
Intervention: Choice set 
Intervention Area: Client choice architecture 

The Influence of Affect on Heuristic Thinking in Insurance Demand

Heuristic thinking can influence human behavior in decisions under risk and uncertainty. In an experimental setting, we study whether emotional activation primes individuals to use the representativeness heuristic and the affect heuristic. We observe the decision behavior of 272 subjects in a computer‐based experiment that differentiates between incidental affect and integral affect. Positive incidental affect and integral affect increase the use of the representativeness heuristic, while negative incidental affect has no effect. Our findings have statistical and economic significance and carry implications for insurance companies and regulators. 

Author: Aseervatham, V.  |  Jaspersen, J.G. 
Financial Decision: Cover level selected 
Year: 2017
Country: Germany 
Product Type: Short-term insurance 
Product Category: Insurance 
Intervention: Affect 
Intervention Area: Client communication 

Information Architecture and Intertemporal Choice: A Randomized Field Experiment in the United States

In a randomized field experiment, I show that information architecture significantly affects individuals' spending and savings behavior. I present users of a large online account aggregation provider with a personalized financial index. This index represents the inflation-protected, lifetime monthly cash flow that they can obtain, given their personal financial and demographic information and current market prices. Users receiving this information tool reduce their spending by 10.7% relative to a control group. This effect is sensitive to the description of the index using a consumption frame rather than an investment frame and to the presentation of an explicit comparison between the index and historical spending levels. Further, spending reductions are primarily in large, infrequent transactions. This experiment is the first to directly affect overall spending behavior and to demonstrate the importance of information architecture in that context. It demonstrates the potential of low cost digital information tools to impact financial behavior on a large scale 

Author: Levi, Y. 
Financial Decision: Repayment of outstanding loan 
Year: 2015
Country: United States 
Product Type: Other savings product 
Product Category: Savings 
Intervention: Relative adjustment 
Intervention Area: Client communication 

Social Networks and the Decision to Insure

Using data from a randomized experiment in rural China, we study the influence of social networks on weather insurance adoption and the mechanisms through which they operate. To quantify network effects, the experiment provides intensive information sessions about the product to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is equivalent to granting a 13 percent reduction in the insurance premium. By varying the information available about peers' decisions and randomizing default options, we show that the network effect is driven by the diffusion of insurance knowledge rather than purchase decisions 

Author: Sadoulet, E.  |  De Janvry, A.  |  Cai, J. 
Financial Decision: Enrolment 
Year: 2015
Country: China 
Product Type: Life insurance 
Product Category: Insurance 
Intervention: Messenger 
Intervention Area: Client communication 

The Long-Term Effects of Temporary Incentives to Save: Evidence from a Prize-Linked Savings Field Experiment

Are savings accounts experience goods, where consumers learn the value of saving in formal financial institutions only after opening and using an account? Across 110 bank branches throughout Mexico, we randomized a short-run incentive to save: prize-linked savings accounts with cash-prize lotteries, where lottery tickets are awarded as a function of savings balances. Both existing account holders and new account openers were eligible to win prizes, which were based on new savings accumulated over two months. After two months, the incentive was removed. We find that the savings lotteries served as a nudge to open accounts, causing a 43% increase in the number of bank accounts opened in treatment branches during the lottery months; in pre- and post-lottery months, there was no difference in the number of accounts opened in treatment and control branches. On the other hand, there was no intensive margin effect of the incentive on savings balances for existing accounts. While compliers who open accounts in treatment branches during lottery months initially save less than those who open accounts during the same months in control branches, we find that their savings balances catch up to the control group over time (after about 18 months). Furthermore, account openers in the treatment and control branches make transactions and keep their accounts active at similar rates in the five years after account opening. 

Author: Seira, E.  |  Gertler, P.  |  Higgins, S.  |  Scott, A. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2018
Country: Mexico 
Product Type: Savings account 
Product Category: Savings 
Intervention: Prize-linked 
Intervention Area: Pricing and financial benefits 

Choice Architecture Versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market

We show that changes in choice architecture have a large effect on student loan decisions while we do not find significant effects of sizeable interest rate changes. We evaluate the effect of two polices implemented in 2010 by the U.S. Department of Education: (1) the requirement that all applicants for private student loans fill out a Self-Certification Form, which includes various disclosures about federal student aid, and (2) the prohibition of presenting a private student loan as a default option on a financial aid offer without disclosure of the relationship between the school and the creditor. Using difference-in-difference and matching techniques on a proprietary dataset of private student loan originations from the Consumer Financial Protection Bureau and survey and administrative data from the Department of Education, we show that these changes decreased private student loan originations. In contrast, we find no consumer response when analyzing a 60 basis point decrease in the price of federal Parental PLUS Loans at some schools, using the same datasets and similar estimation techniques 

Author: Alexandrov, A.  |  Ang, X. 
Year: 2017
Country: United States 
Product Type: Student loan 
Product Category: Credit 
Intervention: Choice set 
Intervention Area: Client choice architecture 

Healthcare.gov 3.0 - Behavioral Economics and Insurance Exchanges

To test whether such associations might influence people’s perceptions of insurance plans, the researchers interviewed people in buses and asked them which category of plans they would look at first if they were shopping for health insurance. To half the people gold plans were described as having higher monthly premiums and lower out-of-pocket costs For the other half the gold and bronze plans were switched, describing the gold plans as having lower monthly premiums and higher out-of-pocket costs. It shouldn’t matter whether plans are called bronze or gold. Instead, the plans’ attributes —high or low monthly premiums and high or low out-of-pocket costs — should determine people’s choices.  

Author: Johnson, E.  |  Comeford, D. A.  |  Ubel, P. A. 
Financial Decision: Enrolment 
Year: 2015
Country: United States 
Product Type: Other insurance product 
Product Category: Insurance 
Intervention: Signalling 
Intervention Area: Client communication 

Testing Strategies to Increase Saving and Retention in Individual Development Account Programs

In a series of field experiments we test whether saving and retention rates in a federally funded, matched savings program for low-income families – the Individual Development Account (IDA) program – can be improved through the introduction of program features inspired by behavioral economics. We partnered with eight IDA programs across the U.S. who agreed to randomly assign participants to different experimental conditions. We test the impact of four revenue-neutral changes in key program features: a) holding savers accountable for making savings deposits through phone calls before and after the deposit deadline, b) an increase in the frequency with which deposits are made from monthly to bi-weekly, c) the introduction of a lottery-based incentive structure, whereby match rates are determined in part by a lottery at the time of each deposit, and d) an increase in the savings match from $2 for every $1 saved to $4 for every $1 saved when half of the savings goal was reached. None of our four interventions had the desired effect of increasing savings. To explain the null findings, we speculate that liquidity constraints, rather than cognitive biases, were the primary impediment to saving. 

Author: Haisley, E.  |  Loibl, C.  |  Loewenstein, G.  |  Jones, L.E. 
Financial Decision: Savings goal selected  |  Total savings accumulated 
Year: 2018
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Prize-linked  |  Reminders 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

Testing Strategies to Increase Saving and Retention in Individual Development Account Programs

In a series of field experiments we test whether saving and retention rates in a federally funded, matched savings program for low-income families – the Individual Development Account (IDA) program – can be improved through the introduction of program features inspired by behavioral economics. We partnered with eight IDA programs across the U.S. who agreed to randomly assign participants to different experimental conditions. We test the impact of four revenue-neutral changes in key program features: a) holding savers accountable for making savings deposits through phone calls before and after the deposit deadline, b) an increase in the frequency with which deposits are made from monthly to bi-weekly, c) the introduction of a lottery-based incentive structure, whereby match rates are determined in part by a lottery at the time of each deposit, and d) an increase in the savings match from $2 for every $1 saved to $4 for every $1 saved when half of the savings goal was reached. None of our four interventions had the desired effect of increasing savings. To explain the null findings, we speculate that liquidity constraints, rather than cognitive biases, were the primary impediment to saving. 

Author: Haisley, E.  |  Loibl, C.  |  Loewenstein, G.  |  Jones, L.E. 
Financial Decision: Savings goal selected  |  Total savings accumulated 
Year: 2018
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Prize-linked  |  Reminders 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

Testing Strategies to Increase Saving and Retention in Individual Development Account Programs

In a series of field experiments we test whether saving and retention rates in a federally funded, matched savings program for low-income families – the Individual Development Account (IDA) program – can be improved through the introduction of program features inspired by behavioral economics. We partnered with eight IDA programs across the U.S. who agreed to randomly assign participants to different experimental conditions. We test the impact of four revenue-neutral changes in key program features: a) holding savers accountable for making savings deposits through phone calls before and after the deposit deadline, b) an increase in the frequency with which deposits are made from monthly to bi-weekly, c) the introduction of a lottery-based incentive structure, whereby match rates are determined in part by a lottery at the time of each deposit, and d) an increase in the savings match from $2 for every $1 saved to $4 for every $1 saved when half of the savings goal was reached. None of our four interventions had the desired effect of increasing savings. To explain the null findings, we speculate that liquidity constraints, rather than cognitive biases, were the primary impediment to saving. 

Author: Haisley, E.  |  Loibl, C.  |  Loewenstein, G.  |  Jones, L.E. 
Financial Decision: Savings goal selected  |  Total savings accumulated 
Year: 2018
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Prize-linked  |  Reminders 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

Testing Strategies to Increase Saving and Retention in Individual Development Account Programs

In a series of field experiments we test whether saving and retention rates in a federally funded, matched savings program for low-income families – the Individual Development Account (IDA) program – can be improved through the introduction of program features inspired by behavioral economics. We partnered with eight IDA programs across the U.S. who agreed to randomly assign participants to different experimental conditions. We test the impact of four revenue-neutral changes in key program features: a) holding savers accountable for making savings deposits through phone calls before and after the deposit deadline, b) an increase in the frequency with which deposits are made from monthly to bi-weekly, c) the introduction of a lottery-based incentive structure, whereby match rates are determined in part by a lottery at the time of each deposit, and d) an increase in the savings match from $2 for every $1 saved to $4 for every $1 saved when half of the savings goal was reached. None of our four interventions had the desired effect of increasing savings. To explain the null findings, we speculate that liquidity constraints, rather than cognitive biases, were the primary impediment to saving. 

Author: Haisley, E.  |  Loibl, C.  |  Loewenstein, G.  |  Jones, L.E. 
Financial Decision: Savings goal selected  |  Total savings accumulated 
Year: 2018
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Prize-linked  |  Reminders 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

The Effect of Providing Peer Information on Retirement Savings Decisions

Using a field experiment in a 401(k) plan, we measure the effect of disseminating information about peer behavior on savings. Low‐saving employees received simplified plan enrolment or contribution increase forms. A randomized subset of forms stated the fraction of age‐matched co-workers participating in the plan or age‐matched participants contributing at least 6% of pay to the plan. We document an oppositional reaction: the presence of peer information decreased the savings of nonparticipants who were ineligible for 401(k) automatic enrolment, and higher observed peer savings rates also decreased savings. Discouragement from upward social comparisons seems to drive this reaction. 

Author: Beshears, J. L.  |  Choi, J. J.  |  Laibson, D.  |  Madrian, B. C.  |  Milkman, K. L. 
Financial Decision: Enrolment 
Year: 2015
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Social norms 
Intervention Area: Client communication 

SMS Messages for Financial Inclusion in the Dominican Republic

Bank accounts can provide a secure way for low-income households to build their assets to make large investments or protect themselves against unforeseen expenses. Yet many poor households don’t use formal financial services. In the Dominican Republic, Banco Unión delivers remittances to approximately 400,000 clients who do not have a formal bank account. The bank also created two savings products tailored to the needs of these clients. In partnership with the Inter-American Development Bank (IDB) and Innovations for Poverty Action (IPA), Banco Unión developed SMS message campaigns to try to boost account uptake and usage among its remittance-receiving clientele. Two randomized evaluations found that the messaging campaigns did not increase clients’ use of formal bank accounts, and may have in fact discouraged account holders’ engagement with Banco Unión, as observed through decreased deposit and withdrawal activity and slightly lower balances by the end of the campaigns. There are several possible explanations for this behavior, including a desire for privacy, savings goals that were overly ambitious, or the use of other, unmonitored deposit products. 

Author: Dibner-Dunlap, A. 
Financial Decision: Savings goal selected  |  Total savings accumulated 
Year: 2017
Country: Dominican Republic 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders 
Intervention Area: Client communication 

When Commitment Fails - Evidence from a Field Experiment

Commitment products can remedy self-control problems. However, imperfect knowledge about their preferences may (discontinuously) lead individuals to select into incentive-incompatible commitments, which reduce their welfare. I conduct a field experiment where low-income individuals were randomly offered a new instalment savings commitment account. Individuals chose a personalized savings plan and a default penalty themselves. A majority appears to choose a harmful contract: While the average effect on bank savings is large, 55 percent of clients default, and incur monetary losses. A possible explanation is that the chosen penalties were too low (the commitment was too weak) to overcome clients’ self-control problems. Measures of sophisticated hyperbolic discounting correlate negatively with take-up and default, and positively with penalty choices – consistent with theoretical predictions that partial sophisticates adopt weak commitments and then default, while full sophisticates are more cautious about committing, but better able to choose incentive-compatible contracts. 

Author: John, A. 
Financial Decision: Total savings accumulated 
Year: 2018
Country: Philippines 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices  |  Goal-directed 
Intervention Area: Commitment features 

Temporal Reframing and Savings: A Field Experiment

A growing percentage of American workers are now freelancers and thus responsible for their own retirement savings, yet they face a number of psychological hurdles that hamper them from saving enough money for the long-term. Although prior theory-derived interventions have been successful in addressing some of these obstacles, encouraging participation in saving programs is a challenging endeavour for policymakers and consumers alike. In a field setting, we test whether framing savings in more or less granular formats (e.g., saving daily versus monthly) can encourage continued saving behavior through increasing the take-up of a recurring deposit program. Among thousands of new users of a financial technology app, we find that framing deposits in daily amounts as opposed to monthly amounts quadruples the number of consumers who enroll. Further, framing deposits in more granular terms reduced the participation gap between lower and higher income consumers: three times as many consumers in the highest rather than lowest income bracket participated in the program when it was framed as a $150 monthly deposit, but this difference in participation was eliminated when deposits were framed as $5 per day 

Author: Hershfield, H. E.  |  Benartzi, S.  |  Shu, S. 
Financial Decision: Enrolment 
Year: 2018
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Choice set 
Intervention Area: Client choice architecture 

Paying in pieces: A natural experiment on consumer demand under different payment schemes

We exploit a large-scale natural experiment to estimate the causal impact of a switch in payment modality on demand for a popular life insurance product. Requiring upfront lump-sum payments reduces demand by about 30 percent relative to when paying by installment is possible. The context makes it unlikely that common neoclassical explanations have power, including the roles of price, income, liquidity constraints, information, convenience, and discount rates. We describe three behavioral explanations consistent with the finding. The sample includes 207,000 poor women involved in microfinance borrowing, and the result helps illuminate the low demand for merit goods in similar contexts. 

Author: Bauchet, J.  |  Morduch, J. 
Financial Decision: Enrolment 
Year: 2018
Country: Mexico 
Product Type: Life insurance 
Product Category: Insurance 
Intervention: Choice set 
Intervention Area: Client choice architecture 

Debt Relief or Debt Restructuring? Evidence from an Experiment with Distressed Credit Card Borrowers

This paper reports results from a randomized field experiment that offered distressed credit card borrowers more than $50 million in debt forgiveness and over 27,500 additional months to repay their debts. The experimental variation effectively  randomized debt write-downs and minimum payments for borrowers at eleven large credit card issuers. Merging information from the experiment to administrative tax and bankruptcy records, we find that the debt write-downs increased debt repayment and decreased bankruptcy ling. The debt write-downs also increased formal sector employment for the most financially distressed borrowers. In contrast, we find little impact of the lower minimum payments on debt  repayment, bankruptcy, or employment. We show that this null result can be explained by the positive short-run effect of increased liquidity being o set by the unintended, negative effect of exposing borrowers to more default risk. We conclude that debt relief is more effective than debt restructuring for  distressed credit card borrowers, even when these borrowers are liquidity constrained. 

Author: Dobbie, W.  |  Song, J. 
Financial Decision: Enrolment 
Year: 2016
Country: United States 
Product Type: Other credit product 
Product Category: Credit 
Intervention: Discounting 
Intervention Area: Pricing and financial benefits 

Do lottery payments induce savings behavior? Evidence from the lab

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, 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. 

Author: Filiz-Ozbay, E.  |  Filiz-Ozbay, E.  |  Guryan, J.  |  Hyndman, K.  |  Kearney, M. 
Financial Decision: Contribution level 
Year: 2015
Country: United States 
Product Type: Savings account 
Product Category: Savings 
Intervention: Prize-linked 
Intervention Area: Pricing and financial benefits 

How Do Consumers Respond When Default Options Push the Envelope?

Many employers have increased the default contribution rates in their retirement plans, generating higher employee savings. However, a large fraction of employers are reluctant to default employees into savings rates that are high enough to leave those employees adequately prepared for retirement without supplementary savings. There are two potential concerns regarding a high default: (i) it may drag an employee along to a high contribution rate even when this outcome is not in the employee’s best interest, and (ii) perhaps more importantly, it may cause an employee to opt out of plan participation entirely. We conducted a field experiment with 10,000 employees who visited a website that facilitated savings plan enrollment. They were randomly assigned to see a default contribution rate ranging from 6% (a typical default) to 11%. Relative to the 6% default, higher defaults increased average contribution rates 60 days after a website visit by 20-50 basis points of pay off of a base of 6.11% of pay. We find little evidence that the concerns with high defaults are warranted, although the highest default (11%) increases the likelihood of not participating by 3.7 percentage points. The evidence suggests that erring on the high side when choosing a default contribution rate is less likely to generate unintended consequences than erring on the low side. 

Author: Beshears, J. L.  |  Benartzi, S.  |  Mason, R.T.  |  Milkman, K. L. 
Financial Decision: Contribution level 
Year: 2018
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Are financial retirement incentives more effective if pension knowledge is high?

We study the combined effects of financial incentives and information provision on retirement behavior. To elicit preferences for retirement timing in the laboratory, we ask subjects to make retirement choices under different payoff schemes that introduce variation in financial incentives. Testing ceteris paribus conditions of the financial incentive alone shows a considerable delay of retirement once early retirement becomes financially less attractive. However, varying available information as another treatment parameter reveals considerable heterogeneity in the functioning of these incentives. Subjects who are explicitly informed about the expected pension wealth respond more strongly to financial incentives compared with those who only know their pension annuity. Being informed about a forward-looking measure of pension benefits makes the financial consequences of retirement choices more salient to the decision maker. 

Author: Giesecke, M.  |  Yang, G. 
Financial Decision: Frequency of deposits 
Year: 2018
Country: Germany 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Personalized Information as a Tool to Improve Pension Savings: Results from a Randomized Control Trial in Chile

We randomly offer to workers in Chile personalized versus generalized information about their pension savings and forecasted pension income. Personalized information increased the probability and amounts of voluntary contributions after one year without crowding-out other forms of savings. Personalization appears to be very important: individuals who overestimated their pension at the time of the intervention saved more. Thus, a person’s inability to understand how the pension system affects them may partially explain low pension savings. Despite the significant response to the intervention, its temporary nature and size suggest that information should be combined with other elements to increase its efficiency. 

Author: Fuentes, O.  |  Lafortune, J.  |  Riutort, J.  |  Tessada, J.  |  Vullatoro, F. 
Financial Decision: Contribution level  |  Total savings accumulated 
Year: 2017
Country: Chile 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed 
Intervention Area: Commitment features 

Retirement Contribution Rate Nudges and Plan Participation: Evidence from a Field Experiment

Simple interventions like changing the default or sending a short message can induce individuals to save more for retirement. However, messages that emphasize high savings rates may increase the amount that savings plan participants save while reducing the total number of plan participants. We study this possibility in the context of a field experiment designed to increase retirement savings by U.S. military service-members. We find that service-members who received a message emphasizing a low contribution rate were more likely to participate in a savings plan than were service-members whose message emphasized a high contribution rate, or no rate at all. 

Author: Goldin, J.  |  Homonoff, T.  |  Tucker, W. 
Financial Decision: Contribution level  |  Enrolment 
Year: 2017
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Social norms 
Intervention Area: Client communication 

Can Mandatory Minimum Annuity Laws Have Unintended Consequences? - An Experimental Investigation

The need to ensure that people have adequate savings for retirement has prompted debate among regulators and academics. Certain countries have implemented or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.). We investigated the introduction and repeal of mandatory minimum annuity laws using a laboratory experiment and two surveys (of students and a representative sample of the age-relevant population). Demand for annuities (vs. a lump sum) was sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our result indicates that imposing a mandatory minimum may have unintended consequences in the sense that does not guarantee an increase in the demand for annuities and may even reduce it. The outcome was sensitive to the relation between the level of the mandatory minimum and anticipated consumption (i.e., future financial need). Furthermore, the repeal of mandatory minimum annuity laws does not necessarily restore the demand for annuities to the level before implementation of the constraint. 

Author: Hurwitz, A.  |  Sade, O.  |  Winter, E. 
Financial Decision: Contribution level  |  Enrolment 
Year: 2018
Country: Israel 
Product Type: Pension 
Product Category: Savings 
Intervention: Choice set  |  Anchoring 
Intervention Area: Client choice architecture  |  Client communication 

The Effect of Information on Demand for High-Load Insurance

High-load insurance products, such as extended warranties and rental car insurance, often are criticized for the large profits they generate at the expense of potentially uninformed consumers. A popular solution is to require sellers to disclose more information, allowing consumers to make an informed and rational economic decision. Whether or not such disclosure actually helps consumers to make economically rational choices, however, remains an open question. We conduct a laboratory experiment to determine whether disclosure affects demand for high-load insurance and, if so, what information has the greatest effect. Following a paid real-effort task, we present experiment subjects with a potential loss of their earnings and offer high-load insurance to cover the loss. Subjects receive one of three additional information disclosures: (1) the true probability of loss, (2) the expected loss or “cost of goods sold" for the insurer, or (3) the insurer’s profit on the transaction. Ultimately, none of the disclosures has any significant effect on demand, supporting existing evidence in other fields that disclosure is not effective in changing behavior. These results demonstrate that mandated disclosure is not an appropriate solution to the problem of high-load insurance and that alternative policies should be considered. 

Author: Ragin, M.A. 
Financial Decision: Enrolment 
Year: 2015
Product Type: Short-term insurance 
Product Category: Insurance 
Intervention: Loss or gain framing 
Intervention Area: Client communication 

Automatic Enrollment and Choices of Pension Plans: An Experimental Study in Brazil

One alternative presented in the literature to increase adhesion to pension plans is to modify the default of choices from opt in (to adhere to the plan) to opt out (leave the plan), a nudge typical of the libertarian paternalism (Kahneman, 2002). An experimental design was adopted, adapted from a tool by Hey (2007). The research was made available with the assistance of Questionpro© and sent to respondents in Brazil through social networks from July to December 2015. 241 answers were obtained. The experiment was composed of a control group and two treatment groups. In both groups, individuals made decisions throughout nine periods: five in the work stage and four in the post-retirement stage. In the control group, the participant chose if he/she wanted to save part of the income (USD 260.00 per period, equivalent to BRL 1,000.00) as well as decide which of the pension plans to contribute to. Three possible plans were offered to the participants with different risk profiles: plan 1 (with the same probability of earning 1.4% or 5.2% per period), plan 2 (1.5% or 4.3%), and plan 3 (1.6% or 3.4%). In treatment group 1, the participant was automatically enrolled in the standard plan and could decide in the following periods, if he/she wanted to continue contributing to a plan, at which percentage, and for which of the plans offered. The results suggest that the pension funds with automatic enrollment, parity contribution of the sponsor, and absence of the element of risk, positively influence the decision of adhesion to the plan. In this scenario, there was a longer permanence in this plan compared to the control scenario in which the design of the plan did not present such characteristics (p-value < 0.01). This conclusion is in line with the work of the nudge theory (Orenstein, 2013; Thaler & Sustein, 2008). 

Author: Afonso, L. E.  |  Pereira, A. G. 
Financial Decision: Contribution level 
Year: 2017
Country: Brazil 
Product Type: Pension 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

A Laboratory Study of Nudge with Retirement Savings

We report results from an on-line economics experiment that examines the effect of nudging retirement savings decisions. In the experiments, participants make decisions in a finitely repeated retirement savings game, in which income during working years is uncertain, and retirement age is known. Participants, who are household financial decision-makers, are nudged with automatic savings in each period of the game. We find that that the nudge simply replaced natural decision-making observed in the absence of a nudge in this experiment, even to the extent that it resulted in nearly identical inferred decision rules. This surprising result highlights the unpredictability of the effect of nudging human behavior. 

Author: Azerot, A.  |  de Montaignac, M.  |  Engle-Warnick, J.  |  Tasneem, D. 
Financial Decision: Contribution level 
Year: 2018
Country: Canada 
Product Type: Savings account 
Product Category: Savings 
Intervention: Opt-in/opt-out defaults 
Intervention Area: Client choice architecture 

Status Goods: Experimental Evidence from Platinum Credit Cards

This paper provides novel field-experimental evidence on status goods. We work with an Indonesian bank that markets platinum credit cards to high-income customers. In a first experiment, we show that demand for the platinum card greatly exceeds demand for a nondescript control product with identical benefits, suggesting demand for the pure status aspect of the card. Transaction data reveal that platinum cards are more likely to be used in social contexts, implying social image motivations. Combining price variation with information on the use of the card sheds light on the magnitude of the demand for social status. In a second experiment, we provide evidence of positional externalities from the consumption of these status goods. The final experiment shows that increasing self-esteem causally reduces demand for status goods. We infer that part of the demand for status is psychological in nature, and that social image is a substitute for self-image. 

Author: Bursztyn, L.  |  Fiorin, S.  |  Kanz, M.  |  Ferman, B.  |  Rao, G. 
Financial Decision: Enrolment 
Year: 2017
Country: Indonesia 
Product Type: Credit card 
Product Category: Credit 
Intervention: Signalling 
Intervention Area: Client communication 

Social capital and savings behavior of the poor: evidence from the field

Two thousand and fifty six Senegalese clients of a Microfinance Institution (MFI) participated in the experiment during four months. They were divided in three groups: a control group that did not receive any messages, and two treatment groups, one in which clients received generic messages that simply said they should save money, and another group in which clients received messages that referred to the savings behavior of individuals who live in their neighbourhood. The goal of this study is to assess whether receiving additional information about other participants from the same area where the participants live (neighbourhood social capital) affects savings behavior. The results of this study show no significant impact of generic messages on savings behavior. Social capital effectively encourages deposits, which also makes withdrawals more salient since the accounts are fully liquid, but only among female clients. Limited attention, psychological reactance, salience, and gender issues emerge as possible explanations 

Author: Oliveira, L.D.S.D 
Financial Decision: Total savings accumulated 
Year: 2017
Country: Senegal 
Product Type: Savings account 
Product Category: Savings 
Intervention: Reminders  |  Social norms 
Intervention Area: Client communication 

Framing the Future: The Risks of Pre-Commitment Nudges and Potential of Fresh Start Messaging

There is growing interest in applying principles from the field of behavioral science to shift individual decisions in desirable directions through “nudges.” However, an important but oft-overlooked feature of nudges is that they can leak information about the implicit recommendations of their designers. In this paper, we report on paired field and laboratory experiments highlighting that a widely-used nudge—encouraging pre-commitment—can backfire, and that this appears to be due to unintentional information leakage. We also highlight the benefits of a previously untested nudge—framing a future opportunity for behavior change as a “fresh start”—as a means of encouraging future-oriented behaviors. We conducted a field experiment intended to nudge increased retirement savings with 8,682 employees from four major U.S. universities. Offering people the opportunity to choose to save now or to save at a time delay significantly decreased savings over a nine-month follow-up period compared to offering people the opportunity to choose to save now, but highlighting that delayed savings will begin after a fresh start (e.g., an employee’s birthday) counteracted this negative effect. A laboratory experiment suggests an explanation: when a nudge encourages good behavior “later” (i.e., pre-commitment), it leaks the message that the target behavior is not an urgent priority, undermining the nudge’s efficacy. Our findings highlight (1) the critical importance of pilot testing nudges to assess the implicit messages that may be unintentionally leaked by their design and (2) the potential of nudges that rely on fresh start framing 

Author: Beshears, J. L.  |  Benartzi, S.  |  Milkman, K. L.  |  Pereira, A. G. 
Financial Decision: Contribution level 
Year: 2016
Country: United States 
Product Type: Pension 
Product Category: Savings 
Intervention: Goal-directed  |  Fresh start - timing 
Intervention Area: Commitment features  |  Client communication 

Leaving Money on the Kitchen Table: Exploring Sluggish Mortgage Refinancing Using Administrative Data, Surveys, and Field Experiments

Refinancing a mortgage is an important but complicated decision. Failing to do so optimally can cost borrowers thousands of dollars. This paper investigates a setting where the decision is easier because borrowers receive a pre-approved offer with no upfront monetary costs that offers a significant reduction in monthly payments ($204 on average). Based on administrative data from about 800,000 the administrative data, links this failure to suspicion about the motives of financial institutions. The deals of the bank seem to be too good to be true. In addition, we find that time preferences are somewhat related to failures to refinance. Evidence from three field experiments with about 100,000 borrowers each show that it is very difficult to increase applications rate in such an environment. Financial incentives, i.e. gift cards, to apply can even backfire - consistent with the interpretation that monetary incentives can increase suspicion even further. 

Author: Meier, S.  |  Johnson, E.  |  Toubia, O. 
Financial Decision: Enrolment 
Year: 2015
Country: United States 
Product Type: Mortgage loan 
Product Category: Credit 
Intervention: Standard incentives  |  Messenger 
Intervention Area: Pricing and financial benefits  |  Client communication 

To remit, or not to remit: that is the question. A remittance field experiment

We conduct a remittance field experiment among Salvadoran migrants in the metro DC area. Migrants need to decide whether or not to remit funds to a recipient in El Salvador and if so how much. We maintain a (2 × 2) design in which the remittance budget has a value of $400 or $200, and the remitted funds arrive as cash or grocery vouchers that are non-transferable and applicable to basic necessities that do not include alcohol and cigarettes. Each migrant is randomly allocated to one of the resulting four treatments. We test across these treatments whether control over remittance spending in the form of grocery vouchers affects remittance behavior. We find the following. Our quantitative findings suggest that migrants prefer a remittance to arrive as cash than as groceries when stakes are high. This result is robust to inclusion of a wide set of covariates and is consistent with a conceptual framework in which migrants have preferences over how recipients spend remittances. Our qualitative findings suggest that migrants integrate amounts sent in the experiment with the external environment for sending remittances. We explore the mechanisms underlying the main effect and find that migrants who more recently sent a remittance and, in certain specifications, male migrants exhibit a greater preference for cash. Some implications of our findings are discussed. 

Author: Torero, M.  |  Viceisza, A. 
Financial Decision: Payment amount 
Year: 2015
Country: El Salvador 
Product Type: Remittances 
Product Category: Payments 
Intervention: Labelling/earmarking 
Intervention Area: Commitment features 

How to Help the Poor to Save a Bit: Evidence from a Field Experiment in Kenya

Partnering with a savings product provider in Kenya, we tested the extent to which behavioral interventions and financial incentives can increase the saving rate of individuals with low and irregular income. Our experiment lasted for six months and included a total of twelve conditions. The control condition received weekly reminders and balance reporting via text messages. The treatment conditions received in addition one of the following interventions: (1) reminder text messages framed as if they came from the participant's kid (2) a golden coloured coin with numbers for each week of the trial, on which participants were asked to keep track of their weekly deposits (3) a match of weekly savings: The match was either 10% or 20% up to a certain amount per week. The match was either deposited at the end of each week or the highest possible match was deposited at the start of each week and was adjusted at the end. Among these interventions, by far the most effective was the coin: Those in the coin condition saved on average the highest amount and more than twice as those in the control condition. We hypothesize that being a tangible track-keeping object; the coin made subjects remember to save more often. Our results support the line of literature suggesting that saving decisions involve psychological aspects and that policy makers and product designers should take these influences into account. 

Author: Akbas, M.  |  Ariely, D.  |  Robalino, D. A.  |  Weber, M. 
Financial Decision: Total savings accumulated 
Year: 2016
Country: Kenya 
Product Type: Savings account 
Product Category: Savings 
Intervention: Goal-directed  |  Standard incentives  |  Messenger 
Intervention Area: Commitment features  |  Pricing and financial benefits  |  Client communication 

Situational Factors Influencing Customers' Credit Use Online: A Behavioral Economic Approach

This study investigates consumers'´ credit use online from the perspective of intertemporal choice and focuses on the impact of personalized credit information when choosing utilitarian versus hedonic product. In a simulated shopping experiment, participants from a Norwegian university college could either save money for the product and get it in the future or buy the product on credit and get it now. A between-group design was used with a randomized selection divided into two groups. The test group (n=37) received personalized credit information while choosing the utilitarian and hedonic products. The control group (n=36) did not have this information. Area Under Curve was calculated and used to make statistical operations. Results show that all participants discounted the saving alternative when the time delay increased, which, therefore, increased their willingness to buy on credit online. Participants'´ discounting of the saving alternative was near the hyperbolic model. Second, a significant difference between the utilitarian versus the hedonic products was found for all participants´ willingness to buy on credit online. Finally, personalized information about credit debt had little influence on credit use, but some indications related to hedonic product calls for further research. Implications for research and practice as well as suggestions for future studies are given. 

Author: Fagerstrøm, A.  |  Øverby Markussen, I.M.  |  Sydnes, L. 
Financial Decision: Enrolment 
Year: 2018
Country: Norway 
Product Type: Loan 
Product Category: Credit 
Intervention: Relative adjustment 
Intervention Area: Client communication 

High Hopes: experimental evidence on saving and the transition to high school in Kenya

We report results of a randomised control trial in which parents of primary-school leavers were encouraged to open a convenient bank account operated over a mobile money platform. A lock savings account (LSA) was randomly promoted to half the treatment group. Treatment boosted account take-up by 25 percentage points. Intent-to-treat estimates show that being offered either account increased savings on the mobile phone. Total financial savings increased by 3-4 times, suggesting access to the mobile bank account crowded in other forms of savings. High school enrollment was 5-6 percentage points higher, representing a one-third increase for compliers. 

Author: Habyarimana, J.  |  Jack, W. 
Financial Decision: Enrolment  |  Total savings accumulated 
Year: 2018
Country: Kenya 
Product Type: Savings account 
Product Category: Savings 
Intervention: Commitment devices  |  Reminders 
Intervention Area: Commitment features  |  Client communication 

Prize-Linked Savings Games: Theory and Experiment

We introduce a game in which each player can allocate her endowment in a prize-linked savings (PLS) account, which awards a fixed prize only to a randomly chosen winner. Like Tullock's rent-seeking contest, the probability for each player of winning the prize is the ratio of her PLS deposit to the total deposits made by all participating players. We derive a unique equilibrium and further examine the effects of introducing PLS as an alternative savings option to traditional savings (TS), which yields a fixed rate of return. Our theory predicts that, while inducing the group with low TS deposits to save more, PLS will cannibalize TS and reduce total savings in the group with high TS deposits. However, in contrast to the theory, our experimental results show that PLS significantly increases total savings in both groups. 

Author: Jindapon, P.  |  Sujarittanonta, P.  |  Viriyavipart, A. 
Financial Decision: Total savings accumulated 
Year: 2018
Country: Thailand 
Product Type: Savings account 
Product Category: Savings 
Intervention: Prize-linked 
Intervention Area: Pricing and financial benefits 

Reciprocity and exclusion in informal financial institutions: An experimental study of rotating savings and credit associations

Group cooperation is fundamental to human society. The public goods game is often used to describe the difficulty of group cooperation. However, there are other structures of institutions to maintain group cooperation such as Rotating savings and credit associations (ROSCAs). ROSCAs are informal financial institutions that exist worldwide, in which all participants contribute to a common fund and take turns to receive a return. ROSCAs are common in developing countries and among migrant groups in developed countries. There are various types of ROSCAs, and they share a crucial problem in that participants whose turn to receive a return has passed have an incentive to default on their contributions. We conducted a laboratory experiment to investigate the mechanisms that can prevent default in a fixed ROSCA, in which the order of receipt of returns is determined before starting and is also known to members. The findings are as follows. (i) Excluding low contributors from ROSCA groups by voting increased contribution rates both before and after the receipt of returns. (ii) ROSCA members exhibited reciprocity and a sense of revenge: that is, members contributed to the returns payments of other members who had contributed to them, and did not contribute to the returns payments of non-contributors. Voluntary behaviors thus sustained ROSCAs. Meanwhile, an exogenous punishment whereby subjects were prevented from receiving returns payments unless they had themselves contributed previously did not increase contribution rates. 

Author: Koike, S.  |  Nakamaru, M.  |  Otaka, T.  |  Shimao, H.  |  Shimomura, K.  |  Tamato, T. 
Financial Decision: Contribution level  |  Enrolment 
Year: 2018
Country: Japan 
Product Type: Other savings product  |  Other credit product 
Product Category: Savings  |  Credit 
Intervention: Social enforecement 
Intervention Area: Commitment features 

Leveraging the Lottery for Financial Inclusion: Lotto-Linked Savings Accounts in Haiti

Most Haitians are more familiar with lottery wagers than any other financial transaction and lack access to savings products. Using a lab-in-field experiment in Portau-Prince, we asked 306 participants to allocate a fixed budget across consumption, a real-world lotto product, a real-time traditional savings product, and a lotto-linked savings (LLS) product that returned 60-100% of the principal with lotto credit in lieu of interest. We find that the introduction of an LLS product increased total upfront savings by 22%, an increase roughly equivalent to that induced by raising the traditional interest rate from 5 to 20%. This savings response increased to 30% when the LLS product returned more principal and less lotto credit. An LLS product with a lower expected return was equally effective at increasing savings as one that had the same expected return as the savings product, suggesting it is the presence, not the extent, of the lotto component that drives the savings response. The LLS-induced increase in savings was financed by large reductions in lotto spending, slightly smaller reductions in traditional savings, and yet smaller reductions in consumption, which increased subjects’ overall expected returns in the experiment. Individuals who allocated more to the lottery pre-LLS and who overweight small probabilities increased savings most in response to the LLS. 

Author: Dizon, F.  |  Lybbert, T.J. 
Financial Decision: Total savings accumulated