Could introducing a tiny interest rate on positive balances of checking accounts affect investment decisions? We suggest, counterintuitively, that it might decrease allocations to checking accounts and increase riskless investments with higher returns. This violation of monotonicity is a potential outcome of a novel behavioral phenomenon that we formalize and investigate experimentally. It posits that even a small interest rate highlights or turns on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices may shift from the most liquid option, the checking account, to safe investments with superior returns. Our exploration of this phenomenon covers three different choice environments: investment decisions, social preferences, and choice under uncertainty.
|Number of pages||25|
|State||Published - Aug 2022|
Bibliographical noteFunding Information:
History: Accepted by Yan Chen, behavioral economics and decision analysis. Funding: This work was supported by The Henry Crown Institute of Business Research in Israel, The Solomon Lew Center for Consumer Behavior, The Coller Foundation. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2021.4205.
This work was supported by The Henry Crown Institute of Business Research in Israel, The Solomon Lew Center for Consumer Behavior, The Coller Foundation. The authors thank Neta Klein, Eli Mograbi, Dor Shlenger, Yuval Tsuk, Gilad Bar-Levav, Emily Klinger, and Eliad Amsalem for their great assistance. The authors also thank Ariel Rubinstein, Yair Antler, Dotan Persitz, and Moti Michaeli as well as seminar participants at the Hebrew University, Ben-Gurion University, University of Haifa, Tallinn University of Technology, and participants at The BRIC5 conference, The Second Behavior Change Conference in Coller School of Management, annual meeting of the Israeli Association of Economics, CESS 15th Anniversary meeting at NYU, 2020 ESA World Meeting, and BREW India 2020 for helpful comments.
© 2022 INFORMS.
- social preferences
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research