"Under-Savers Anonymous": Using Peer Pressure to Save More Money
A new working paper by Felipe Kast, Stephan Meier, Dina Pomeranz combines two of our favorite topics, both explored in recent podcasts: our inability to save money and the efficacy of commitment devices. The paper is called “Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device” (abstract; PDF), and it reports a remarkable near-doubling of savings among those who submit to peer pressure:
We test the effectiveness of self-help peer groups as a commitment device for precautionary savings, through two randomized field experiments among 2,687 microentrepreneurs in Chile. The first experiment finds that self-help peer groups are a powerful tool to increase savings (the number of deposits grows 3.5-fold and the average savings balance almost doubles). Conversely, a substantially higher interest rate has no effect on most participants.
And, even more encouraging:
A second experiment tests an alternative delivery mechanism and shows that effects of a similar size can be achieved by holding people accountable through feedback text messages, without any meetings or peer pressure.