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Volume 11
Issue 4
Online publication date 2016-01-19
Title Prize-linked savings mechanism in the portfolio selection framework
Author Anna Kaliciak
Abstract
Prize-linked savings (PLS) instruments implement the lottery-like component into the structure of traditional financial products. Following existing research based on both real and experimental data, such programs appeared highly successful in raising the overall savings rates within the given environments. PLS accounts seem to be treated by decision-makers as substitutes to ordinary lotteries, but this does not hold when comparing PLS with traditional interest-bearing savings products. 

This paper explains such empirical observations in a framework of portfolio selection problem. For that purpose, two models have been presented and used for deriving optimal portfolios in a presence of PLS, lottery and savings products. As shown in the analysis, the standard mean-variance model does not allow for a PLS instrument to be of optimum choice, whereas in the case of behavioural portfolio model allocating all disposable income 
Citation
References
Atalay K., Bakhtiar F., Cheung S., Slonim R., 2014. "Savings and prize-linked savings accounts", Journal of Economic Behavior and Organization, 107, pp.86-106, http://dx.doi.org/10.1016/j.jebo.2014.07.015
 
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National Savings and Investments, 2015. "Annual report and accounts and product accounts 2014-15"
 
Roy A.D., 1952. "Safety first and the holding of assets", Econometrica, Vol.20(3), pp.431-449, http://dx.doi.org/10.2307/1907413
 
Shefrin H., Statman M., 2000. "Behavioral portfolio theory", Journal of Financial and Quantitative Analysis, Vol.35(2), pp.127-151, http://dx.doi.org/10.2307/2676187
 
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Keywords Prize-linked savings, mean-variance model, behavioral portfolio theory
DOI http://dx.doi.org/10.15208/beh.2015.15
Pages 195-208
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