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      Self Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?
      23 Nov 2015Working Paper Summaries

      Self Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?

      by John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Christopher Harris and Jung Sakong
      John Beshears and colleagues find evidence to show commitment accounts can help would-be savers with self-control problems.
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      Author Abstract

      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.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2015
      • HBS Working Paper Number: NBER Working Paper Series, No. 21474
      • Faculty Unit(s): Negotiation, Organizations & Markets
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      John Beshears
      John Beshears
      Terrie F. and Bradley M. Bloom Associate Professor of Business Administration
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