New perspectives on financial decisions

Abstract

This thesis investigates household financial decisions using a combination of behavioral and microeconomic theory and empirical data. The primary focus is on savings, with a secondary focus on payments. Regarding savings, the thesis argues that simply increasing savings through an intervention may not necessarily increase welfare, especially during a crisis. Interventions that reduce the ability of individuals or households to act, such as commitment mechanisms or defaults, may increase savings but decrease welfare if the state of the world changes. Conversely, interventions that leave individuals or households free to act, like reminders, may decrease savings but increase welfare in the event of a deteriorating world state. The thesis shows that, during the COVID-19 crisis, aggregate and average savings increased, but most individuals could save less or not save, while wealthier households were able to save more. This suggests that crises may exacerbate wealth inequality beyond their effect on income inequality, perpetuating inequalities in the ability to build precautionary savings and prepare for future unexpected reductions in income. Regarding payments, the thesis examines whether an unexpected reward can shift payment behavior effectively and with lower long-term costs. Using a randomized controlled trial, the thesis finds that unexpected rewards can indeed shift payment behavior.

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