A lot of brokerages use sales contest to motivate brokers to sell specific investments or services to clients. For example, at firms like Schwab, brokers who won the contest were compensated with a trip to Hawaii. However, the Securities and Exchange Commission (SEC) is putting a stop to the practice with a new rule, Regulation Best Interest, which went into effect in June 2020. The rule bans brokerages from certain types of sales contests aimed at single products. a) Imagine you can choose between two lotteries: In the first you have a 1% chance of winning $1,000 in cash as well as a $500 gift card to a Michelin star restaurant. In the second lottery, you have a 1% chance of winning $1,500. Which lottery do you choose and why?

Which do you think would be more memorable if you won? (Hint: research mental accounting)

b) Discuss the SEC’s Regulation Best Interest law. Do you agree or disagree with it and why?