Which Early Withdrawal Penalty Attracts the Most Deposits to a Commitment Savings Account?

ABSTRACT: Previous research has shown that some people voluntarily use commitment contracts that restrict their own choice sets. We study how people divide money between two accounts: a liquid account that permits unrestricted withdrawals and a commitment account that is randomly assigned in a between-subject design to have either a 10% early withdrawal penalty, or a 20% early withdrawal penalty, or not to allow early withdrawals at all (i.e., an infinite penalty). When the liquid account and the commitment account pay the same interest rate, higher early-withdrawal penalties attract more commitment account deposits. This pattern is predicted by the hypothesis that some participants are partially- or fully-sophisticated present-biased agents. Such agents perceive that higher penalties generat

SUBMITTER: Beshears J 

PROVIDER: S-EPMC7079766 | biostudies-literature | 2020 Mar

REPOSITORIES: biostudies-literature