Tag Archives: precommitment

Abhijit Banerjee & Esther Duflo

Designing financial products that share the commitment features of the microfinance contracts, without the interest that comes with them, could clearly be of great help to many people. A group of researchers teamed up with a bank that works with poor people in the Philippines to design such a product, a new kind of account that would be tied to each client’s own savings targets. This target could be either an amount (the client would commit not to withdraw the funds until the amount was reached) or a date (the client would commit to leave the money in the account until that date). The client chose the type of commitment and the specific target. However, once those targets were set, they were binding, and the bank would enforce them. The interest rate was no higher than on a regular account. These accounts were proposed to a randomly selected set of clients. Of the clients they approached, about one in four agreed to open such an account. Out of those takers, a little over two-thirds chose the date goal, and the remaining one-third, the amount goal. After a year, the balances in the savings accounts of those who were offered the account were on average 81 percent higher than those of a comparable group of people who were not offered the account, despite the fact that only one in four of the clients who had been offered the account actually signed on. And the effects were probably smaller than they could have been, because even though there was a commitment not to withdraw any money, there was no positive force pushing the client to actually save, and many of the accounts that were opened remained dormant.

Yet most people preferred not to take up the offer of such an account. They were clearly worried about committing themselves to not withdrawing until the goal was reached. Dumas and Robinson ran into the same problem in Kenya—many people did not end up using that accounts they were offering, some of the because the withdrawal fees were too high and they did not want to have their money tied up in the account. This highlights an interesting paradox: There are ways to get around self-control problems, but to make use of them usually requires an initial act of self-control.

Abhijit Banerjee & Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, New York, 2011, pp. 197-198

Thomas Schelling

Relinquish authority to somebody else: let him hold your car keys.

Commit or contract: order your lunch in advance.

Disable or remove yourself: throw your car keys into the darkness; make yourself sick.

Remove the mischievous resources: don’t keep liquor, or sleeping pills, in the house; order a hotel room without television.

Submit to surveillance.

Incarcerate yourself. Have somebody drop you at a cheap motel without telephone or television and call for you after eight hours’ work. (When George Steiner visited the home of Georg Lukacs he was astonished at how much work Lukacs, who was under political restraint, had recently published-shelves of work. Lukacs was amused and explained, “You want to know how one gets work done? House arrest, Steiner, house arrest!”)

Arrange rewards and penalties. Charging yourself $100 payable to a political candidate you despise for any cigarette you smoke except on twenty-four hours’ notice is a powerful deterrent to rationalizing that a single cigarette by itself can’t do any harm.

Reschedule your life: do your food shopping right after breakfast.

Watch out for precursors: if coffee, alcohol, or sweet desserts make a cigarette irresistible, maybe you can resist those complementary foods and drinks and avoid the cigarette.

Arrange delays: the crisis may pass before the time is up.

Use buddies and teams: exercise together, order each other’s lunches.

Automate the behavior. The automation that I look forward to is a device implanted to monitor cerebral hemorrhage that, if the stroke is severe enough to indicate a hideous survival, kills the patient before anyone can intervene to remove it.

Finally, set yourself the kinds of rules that are enforceable. Use bright lines and clear definitions, qualitative rather than quantitative limits if possible. Arrange ceremonial beginnings. If procrastination is your problem, set piecemeal goals. Make very specific delay rules, requiring notice before relapse, with notice subject to withdrawal.Permit no exceptions.

Thomas Schelling, ‘Self-Command in Practice, in Policy, and in a Theory of Rational Choice’, The American Economic Review, vol. 74, no. 2 (May, 1984), pp. 6-7

Thomas Schelling

Many of us have little tricks we play on ourselves to make us do the things we ought to do or to keep us from the things we ought to foreswear. Sometimes we put things out of reach for the moment of temptation, sometimes we promise ourselves small rewards, and sometimes we surrender authority to a trustworthy friend who will police our calories or our cigarettes. We place the alarm clock across the room so we cannot turn it off without getting out of bed. People who are chronically late set their watches a few minutes ahead to deceive themselves. I have heard of a corporate dining room in which lunch orders are placed by telephone at 9:30 or 10:00 in the morning; no food or liquor is then served to anyone except what was ordered at that time, not long after breakfast, when food was least tempting and resolve was at its highest. A grimmer example of a decision that can’t be rescinded is the people who have had their jaws wired shut. Less drastically, some smokers carry no cigarettes of their own, so they pay the “higher” price of bumming free cigarettes.

In these examples, everybody behaves like two people, one who wants clean lungs and long life and another who adores tobacco, or one who wants a lean body and another who wants dessert. The two are in a continual contest for control: the “straight” one often in command most of the time, but the wayward one needing only to get occasional control to spoil the other’s best laid plan.

Thomas Schelling, ‘Egonomics, or the Art of Self-Management’, The American Economic Review, vol. 68, no. 2 (May, 1978), p. 290