Launch HN: Yotta Savings (YC S20) – Behavioral psychology to help people save
Premium Bonds is a government-run prize-linked savings program in the UK that started in 1956. It’s a savings account where people get chances to win monthly prizes through a random chance raffle. The more you save, the more entries you get. Premium Bonds are popular because many people prefer the chance to win a life-changing amount of money rather than a small interest payment from a bank. As a result, the program has been successful: over 23M people save through Premium Bonds (33% of the population) with over $100B deposited.
Human nature makes it difficult to adopt habits we know are healthy in the long-run but painful in the short run. The idea behind prize-linked savings is to use psychology to make saving exciting in the short run so that people will get the long run benefit. Even if you don’t win a prize, at least you still have access to your savings. You can’t lose anything other than the opportunity cost of interest at another bank.
In the U.S, people also like the chance to win a life-changing amount of money. This is what drives much of the $80 billion ($640 per household) spent on the lottery every year despite it being a hugely negative expected value proposition. Prize-linked savings was illegal in the U.S until 2015 when the American Savings Promotion Act was passed based on evidence showing prize-linked savings programs help people save more, especially in financially vulnerable populations.
We started building this 9 months ago. Ben and I are both former finance people turned tech people. As personal finance and behavioral psychology nerds (Nudge, Thinking Fast and Slow, etc.), we were excited by the idea of building a product that could help people, but that also had big business potential.
The market for consumer deposits in the U.S is huge. We make money by earning interest from our partner bank. We view our savings product as an entry point into the banking market, with the potential to offer a variety of revenue generating services to our users as other neo-banks have done. We plan to differentiate ourselves from other neo-banks by always offering products that make use of behavioral psychology to nudge people toward healthier financial habits.
With our app, you save money in an FDIC insured account. For every $25 you save, you get a recurring ticket into weekly random number drawings with chances to win prizes ranging from $0.10 to the $10 million jackpot. We provide a rate of return on savings that on average is in-line with the top yielding savings accounts out there like Marcus or Ally. You might get a higher return if you’re lucky and win more prizes than expected. You might get a lower return if you win fewer prizes than expected. Even in a worst case scenario where you never win a prize, you still have your savings.
Yotta is free. The $10 million jackpot would be paid out by our insurance partner. We are funding a jackpot via insurance to solve the chicken and egg problem of offering a life-changing jackpot that we hope will motivate people, even if the odds are extremely low that you’ll win it.
Hope you guys check it out. Happy to answer any questions, and looking forward to any feedback.
308 comments
[ 4.4 ms ] story [ 295 ms ] thread> Please don't post insinuations about astroturfing, shilling, brigading, foreign agents and the like. It degrades discussion and is usually mistaken.
Finally, you pay 0.2% but Ally pays 1% yet you say your rates are as good.
On the insurance side, there are specialty insurance companies that do this kind of thing, similar to hole in one prizes or half court shot prizes at sporting events.
We pay them a mark-up on expected value. Since the risk they're taking is purely mathematical random chance, it's pretty much the best type of insurance for someone to underwrite. There is no uncertainty about what the risk is to them, unlike most other insurance where people are using actuaries to estimate what the risk is, but it's not actually known for sure.
Couldn't you structure the contest so that you know you'd payout $X per week and not need insurance?
Can you elaborate more on this? (Maybe you can't because of the SEC?) APY of Ally is 1.0% right now, vs. 0.20%, so are the expected value of winnings 0.8%?
Odds from here: https://www.withyotta.com/official-rules
I might be completely wrong but looks like your estimate yield is heavily dependent of amount of other people saving as well.
I bet the real model gets pretty damn interesting. Would love to get a closer look for sure.
If you wanted to be a bit more "evil genius". It would be interesting if somehow the money in the grandprize grew based on how many people participated. This would give people incentive to join and lower the overall EV for everyone, but also give you guys more funds to manage :)
- Odds for the $0.20, $0.80 prizes are slightly off.
- The $15 and below prizes are not split between participants, so one would not need to consider the number of other entries for winning those prizes.
If one just considers the $15 and below prizes, I think the odds work out to about 3.2% per year, making it about a 3.4% expected interest total.
That said, it was a fun idea. Instead of picking lottery numbers, ranking tickers in the right order, and then pulling a date out of a hat? Something that only operates on past data?
If you limit the savings options to tried and trusted savings vehicles - savings account, total bond market, total US market and total international - perhaps you can instill investment knowledge in the users on top of the good savings practices.
Also describing the lottery mechanism without any gotcha is the right thing to do for consumers, and being in the unique position you are, you have the opportunity to lead that change.
That sounds like a super-awful kind of savings account, but I think this argument assumed that many numbers-game players' next-most-preferred use of the money they would bet on it was even less like savings, so it could still be helpful by pulling money away from other things. Of course, that's a pretty big and pretty specific assumption.
This project and the idea that inspired it are a way better form of savings because the savers can actually access their principal and don't actually have to pay the bank.
First, the difference between being mistaken and lying is intent. The site guidelines call for being charitable. So unless you can prove intent, don't call out someone for lying.
Second: Just saying someone is wrong/mistaken/lying turns into a five-year-old's argument: "Am not!" "Are too!" That's not a useful conversation, nor even an interesting one. Instead, supply some evidence that the rest of us can look at and judge whether you're right. (Actual evidence might even convince the person you were replying to - some of us here do actually listen to facts from time to time.)
When you interview for a job, and the salary is 100k, should they advertise it as 70k?
If you are new to crypto you can access it easily using wallets like: https://www.argent.xyz/
I see that . Sounds scammy and gimmicky. Close page.
https://www.longgame.co/
Not very useful but I guess if you have 81B in cash laying around, it makes sense to put your money in Yotta over some large banks! Of course that should probably not be in cash but hey, I'm not going to tell you what to do with your 81B dollars.
The business models here is to be a bank that raffles money based on your deposits. And they need to hold that money to generate the profits to support those payouts.
It's quite clever. This fully disrupts businesses like scratch tickets which are quite popular (haven't seen one gas station that doesn't sell them).
I actually wish I had this idea. It's super smart. My only doubt is that this model apparently doesn't scale just with holding money. Digit tried that for a while and then they start charging for their sevice.
We do allow you to be completely anonymous from the privacy settings within the app. If you don't want your first name, last initial, and city shown anywhere, you can toggle it off.
> While technically not "interest," you receive a savings bonus every month that functions very similarly to "interest." Savings bonuses are paid on the first of every month and are based on your average balance in Yotta from the previous month.
How do taxes work with these "savings bonuses". Do you issue a 1099-INT for this money earned or does this show up on a W-2G?
They wanted people to have more flexible access to their funds given given the macro environment.
See the third question at the Fed FAQ here: https://www.federalreserve.gov/supervisionreg/savings-deposi...
If you withdraw, you lose tickets so that is a deterrent to continuing to deposit and withdraw to game the system
Right now it's $2,000 per day. If you want to withdraw more than $2,000 per day, you can upload a driver's license to verify your identity (prevents fraud) and then you can withdraw up to $100,000 per day.
They have no access to the numbers users have selected, so it's completely blind.
We would be able to spot anomalies over time in number of winners of high prizes vs. what the probabilities say, and we would investigate it if anything looked off or suspicious.
We also carefully vetted the insurance co. and the people there that we work with.
These don't eliminate this risk entirely of course, but they help mitigate it.
Companies wrongfully fight unemployment claims all the time to keep their insurance rates down. It would be awful tempting for the insurance agency to send you the drawn numbers even ever so slightly early and let you alert them so they can redraw if the jackpot was ever awarded.
It actually would be beneficial for us for someone to win the jackpot, and not beneficial for the insurer. The marketing benefit of a $10 million payout that an insurance company pays for would be huge for us. That's why the number drawing process is double blind. They choose the winning numbers and they can't see the picks. We can't see the winning numbers but we can see the picks.
Also since this type of insurance is purely mathematical, the risk doesn't change for an insurer if someone wins, so the price wouldn't change either. Unlike, say pet insurance, where if Bulldogs get sick more often than you thought, the insurer simply mispriced the risk.
This type of insurance is impossible to misprice. It's almost like a casino for the insurers. There is risk but no uncertainty of what the risk is and the odds are in your favor when you write more premium.
A simple one (not necessarily anywhere close to the best that cryptography people have come up with) is to combine several sources of randomness in a prearranged time order and format, and use the result as input into a prearranged cryptographic hash function. At least some of those sources should be publicly verifiable, and at least one of those should be https://beacon.nist.gov/home. I can think of critiques and limitations in this approach, but it's a good start!
Edit: someone elsewhere in this thread has given a link to a more sophisticated method.
A. Improves the transparency of the process
B. Improves the entertainment proposition of the gamble aspect of hitting the jackpot.
Maybe with a live event you can do both at once.
https://en.wikipedia.org/wiki/Provably_fair
https://github.com/search?q=provably+fair
It's also very easy to provide the auditing tool. (I did it, long ago. Basically a form.)
That means all the third parties would have to be corrupt to corrupt the results. So if you can pick a diverse set of third parties such that everyone is likely to trust at least one of them, that will raise overall trust.
But you can do better than that.
You can also have people provide their own random input. In that case they will certainly trust themselves, and therefore can trust the results if they can verify the combination step.
And you can draw input from public sources that people can check for themselves, and have confidence is effectively random, in the sense that nobody can control the values. For example public blockchain hashes (as part of a combining scheme, not by themselves).
These sorts of schemes would give people absolute assurance that the drawn numbers are fair and uncorruptible, and they aren't difficult to implement.
(PM me if you'd like to discuss further. Email in profile.)
If you get to choose or influence any of the inputs and (for the most part) know the others, you can influence the result. I.e. choose from a set of outcomes, or at least influence outcome probabilities.
Another thought is that while it is true that in the UK a large number of the population have PBs, these are usually bought by their parents when they are born. I still have my PB account that was set up by my parents, but I wouldn't consider it a tool for saving. Most people's balance in PBs are a tiny proportion of their total savings. Yotta's 0.2% base rate might change that behaviour though!
Building trust is definitely a challenge for us as a new company. Funds with Yotta are FDIC insured up to $250,000, which helps, and we communicate that to users, but people still need to trust us fundamentally.
We looked into Premium Bonds and also found that a lot of Premium Bond ownership comes from older generations. We are hoping that our UI and mobile first approach make the concept more appealing to a younger demographic in the U.S.
I note from your comments the socially-laudable aim of attempting to help people in financially vulnerable populations. I wonder if emulating more elements of a lottery-like game would assist with this... EG imagine if I could walk into a shop, buy what looks and feels like a lottery ticket, but I've actually effectively added money to my phone-number linked savings account. I think there would be real power there, but naturally real logistical complexity also.
Appreciate the feedback.
https://news.ycombinator.com/item?id=23781247
I am a mathematician, and at the same time I can't resist the temptation to purchase the occasional lottery ticket. What most people miss about the lottery is that there can be utility to variance - the opposite of ennui.
Have you guys read The Lottery in Babylon
https://en.wikipedia.org/wiki/The_Lottery_in_Babylon
I gain happiness also from the miniscule hope of the life-altering outcome of winning the lottery.
That gain in happiness is occasionally worth the price of a lottery ticket.
But the odds are on a completely different level of impossibility in lottery that I just cant really get your end of the argument :/
If I were poorer, I suspect the happiness I gained from the lottery ticket purchases would be even greater.
If I already owned a home, on the other hand, I would value the lottery ticket hopes much lower.
Buying a lottery ticket from time to te, when the prize was big, made us live in a fantasy world between the time we bought it and when te results were announced. I think this thing - imagining a life without financial worries, lavish vacations and expensive toys, motivated me to learn more, try to launch a few startups and sacrifice my free time in order to try and achieve greatness.
Were those money well spent? Definitely yes (even though I haven't actually won the lottery)
Tbh lottery tickets can be a pretty cheap form of hope relative to other forms of gambling. Take a look at some of RobinHood's customers who are ”investing”. The odds seemed so favorable until they realized 95% of traders lose their money.
I'm not an expert, but seems to me this feeling is also the main driver leading to gambling addiction, which ultimately leads to addicts saying things like "It's not about the money, but the game itself", after having lost a ton of money.
Wonder if Yotta can lead to the same addiction, and if so if it is then solely applied for positive objectives (i.e. saving money), or lowers the barrier to entry for other gambling schemes that are less beneficial.
I own my home. It's an objectively bad investment (my tech stocks sure appreciated more than a home I bought in 2008 before the crash :) But I like the feeling that comes with owning a home.
I go out for dinner. (Well, used to). It's objectively a waste of time and money, but I still like the feeling that comes with it.
I play guitar. There's no EV attached to it (in fact, people might pay me to stop ;) but there's still an emotional payoff.
The same goes for the lottery. For some people, there's entertainment value in it, despite understanding the mathematics of it. If you've ever played poker for money - unless you're exceptionally good, you paid money to sit around a table in a smoky room. EV is negative, emotional experience is a lot of fun. (Yeah, poker isn't entirely chance, but I promise that unless you're pretty good at it and spent a lot of time learning, it's pretty much equivalent)
A lottery that doesn't have a winner sounds rotten and I don't think you'd eat rotten food from a restaurant, no matter how much you accept that inherent EV of the transaction is negative. There are many, many more words that can and have been written about the psychology of lotteries, but suffice to say, for many lottery players, it's not as simple as "I know that the EV < 1, I'm just playing for the entertainment value".
https://www.theatlantic.com/business/archive/2016/02/how-mit...
Will definitely check out The Lottery in Babylon!
Actually even then, it wouldn't make sense to hold your e-fund in a volatile asset.
The way I understood the work of von Neumann and Morgenstern on game theory, there is an extensive discussion of utility and the derived ordering on preferences.
I interpret recent work on behavioral economics as building on their work to call into question the claim that one can easily estimate such a utility function for an economic agent in a manner invariant to the internal state of that agent.
This train of thought seems like it should leave laissez faire capitalism in the dust.
Is there any reasonably accessible literature on this topic, in particular the latter idea of not being able to estimate an agent’s utility function?
1. Von Neumann and Morgenstern's book (particular the sections where they develop the notion of utility) is pretty readable - https://www.goodreads.com/book/show/483055.Theory_of_Games_a...
2. The Economic Naturalist (https://www.goodreads.com/book/show/629238.The_Economic_Natu...). It is a great compilation of economic edge cases which show that the notion of utility is not so easy to capture using the standard "narrowly self-interested economic agents" world view. It requires a lot of subjective interpretation.
3. The Honest Truth about Dishonesty (https://en.wikipedia.org/wiki/The_Honest_Truth_about_Dishone...). Shows how contextually dependent utility (if it is at all quantifiable) can be.
4. The body of work around the Iterated Prisoner's Dilemma: (https://en.wikipedia.org/wiki/Prisoner%27s_dilemma#The_itera...). In particular we can see how the dynamics of simulations using rational agents diverge from the dynamics of experiments involving actual humans. This suggests that the utility assumptions used in economic analyses do not reflect whatever notion of utility that could actually apply to human behavior.
utility is neat in theory, but seems to be messy in practice. it's one thing to spell out the relationship, but another to calculate an analytic solution (from my limited mathematical experience, navier-stokes comes to mind in this regard).
https://freakonomics.com/podcast/konnikova-biggest-bluff/
- The Garden of Forking Paths - Pierre Menard, Author of the Quixote - The Lottery in Babylon - The Library of Babel - Funes the Memorious - The Secret Miracle - Three Versions of Judas - Death and the Compass
You will not regret it. :)
Does that mean that one could essentially get a list of your customers (that won in a particular week) if someone requests the winners every week? Over time one could figure out about how much each customer has in their savings account.
What information is released on the winners list? I'm not sure if I'd be willing to sign up for an account where my personal information would be released publicly if I "won" a 10 cent prize.
We also allow you to be completely anonymous from the privacy settings within the app.
Based on this, I think someone with $10000 deposited would appear in the winners list about 4 times a year, assuming those that win the $15 prize appear on the list of winners.
In the UK, no such list is published. Nor is it published for lottery winners (you can opt to be anonymous, which is the default option).