Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players

Last registered on May 16, 2016

Pre-Trial

Trial Information

General Information

Title
Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players
RCT ID
AEARCTR-0001215
Initial registration date
May 16, 2016

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
May 16, 2016, 7:41 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Primary Investigator

Affiliation
Dartmouth College

Other Primary Investigator(s)

PI Affiliation
Harvard University
PI Affiliation
UCLA

Additional Trial Information

Status
Completed
Start date
1984-01-01
End date
1996-09-30
Secondary IDs
Abstract
This paper provides empirical evidence about the effect of unearned income on earnings, consumption, and savings. Using an original survey of people playing the lottery in Massachusetts in the mid-1980’s, we analyze the effects of the magnitude of lottery prizes on economic behavior. The critical assumption is that among lottery winners the magnitude of the prize is randomly assigned. We find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent.
External Link(s)

Registration Citation

Citation
, , Donald Rubin and Bruce Sacerdote. 2016. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players." AEA RCT Registry. May 16. https://doi.org/10.1257/rct.1215
Former Citation
, et al. 2016. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players." AEA RCT Registry. May 16. https://www.socialscienceregistry.org/trials/1215/history/8241
Experimental Details

Interventions

Intervention(s)
The study focuses on people who played the Massachusetts Megabucks lottery from 1984 through 1988 and won at least one small prize. Researchers classified “winners” as individuals who won a major prize of between $22,000 and $9,696,000, and “non-winners” as those who won at least one small prize ranging from $100 to $5,000. The average prize for all individuals was $26,000, and major prizes were paid out over 20 years. Through the lottery’s historical records, researchers identified winners and non-winners, and distributed a survey to these individuals. The survey asked questions about economic behavior and earnings both at the time of the survey and at the time of winning a prize, as well as about background characteristics, and requested the release of Social Security earnings information. 259 nonwinners and 237 winners authorized the release of their Social Security records and completed a sufficient number of the survey questions to be included in the study.
Intervention Start Date
1984-01-01
Intervention End Date
1988-12-31

Primary Outcomes

Primary Outcomes (end points)
- Non-lottery earnings
- Savings
- Consumption
- Willingness to work
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Our lottery data set consists of two samples, the “winners” sample and the “nonwinners” sample. The relevant population for the winners sample consists of people playing the Megabucks lottery in Massachusetts during the years 1984 through 1988 and winning a major prize. Major prizes for the purposes of this study are prizes that are paid out in yearly installments over 20 years. The total prizes range from $22,000 to $9,696,000, with the sample mean and median equal to $1,104,000 and $635,000, respectively. The “nonwinners” sample comes from the population of season ticket holders between 1984 and 1988 who have won at least one small, one-time prize, ranging from $100 to $5,000. Individuals were on average 50 years old, predominantly male (63 percent), and more educated than the general population (having attended approximately one more year of school). They earned average incomes of approximately $15,000 in 1983, which was similar to the general population.

The survey questionnaire consists of three sets of questions, the first concerning outcomes at the time of the survey, the second concerning economic behavior and background characteristics at the time of winning, and the third concerning earnings. The survey was conducted in three stages. In July 1995 we sent out by regular mail pilot surveys to 50 winners and 50 non-winners to assess response rates and various approaches to increasing them. In July 1996 we sent out, again by regular mail, surveys to 752 winners and 637 non-winners. Finally, in September 1996 we sent out reminders to 297 non-responding winners and 297 non-responding non-winners. In the pilot survey and the main mailing, respondents were offered the choice between lottery tickets with a nominal cost of 100 dollars or gift certificates in major department stores with a nominal cost of 50 dollars. In the follow-up part of the survey, 49 winners and 49 non-winners were sent ten dollars in cash and were offered a check for an additional 40 dollars in exchange for returning the survey. The other 248 winners and 248 non-winners approached in the follow-up were offered a check for 50 dollars for returning the survey.
Experimental Design Details
Randomization Method
Public lottery
Randomization Unit
Individuals
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
496 lottery winners
Sample size: planned number of observations
496 lottery winners
Sample size (or number of clusters) by treatment arms
Treatment group: 237 lottery winners; control group: 259 "non-winners" (defined as winning only a small amount)
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
Harvard University
IRB Approval Date
1993-05-15
IRB Approval Number
N/A

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
December 31, 1988, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
September 30, 1996, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
496 lottery winners
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
496 lottery winners
Final Sample Size (or Number of Clusters) by Treatment Arms
Treatment group: 237 lottery winners; control group: 259 "non-winners" (defined as winning only a small amount)
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
No
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
This paper provides empirical evidence about the effect of unearned income on earnings, consumption, and savings. Using an original survey of people playing the lottery in Massachusetts in the mid-1980’s, we analyze the effects of the magnitude of lottery prizes on economic behavior. The critical assumption is that among lottery winners the magnitude of the prize is randomly assigned. We find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent.
Citation
Imbens, Guido W., Donald B. Rubin, and Bruce I. Sacerdote. 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players." American Economic Review 91(4): 778-794.

Reports & Other Materials