John Beshears, James Choi, David Laibson, Brigitte Madrian
The goal of this project is to explore people’s willingness to commit to saving money until a specified future date, using a commitment account that limits the users’ access to the account balance. With our input, our partner Credit Union will create two new accounts that will be variants of its current Special Savings account. All features of the two new accounts and the existing Special Savings account will be identical except for the degree of illiquidity. The new accounts will add varying degrees of illiquidity in the form of withdrawal restrictions that apply during a time period that the customers have picked themselves (1 month, 3 months, 6 months, or 12 months).
To the extent that people place too much weight on immediate gratification—an idea that has been formally modeled using hyperbolic time discount functions (Laibson, 1997)—they will tend to save too little and to withdraw accumulated savings too soon. However, if people are aware of their own tendencies to seek immediate gratification, they might make use of “commitment devices” that limit their ability to withdraw savings prematurely.
Beshears, John, James Choi, David Laibson, Brigitte Madrian, and Jung Sakong. “Self-Control and Liquidity: How to Design a Commitment Contract.” 2011.