“We’re not supposed to deny our nature.”
“It’s natural to deny our nature. . . It’s the whole point
of being different from animals.”
“But that’s crazy.”
“It’s the only way to survive,” I said from her breasts.
—DON DELILLO, WHITE NOISE
As graduate students at MIT about a decade ago, Dean Karlan and John Romalis didn’t just feast on food for thought. That’s why, as they completed their studies in economics, they found themselves getting fat.
Neither of them was terribly happy about this, but unlike the rest of us mere mortals who might buy a diet book or join Weight Watchers, these pudgy scholars were getting fat at one of the world’s leading centers of economic thought. Karlan and Romalis knew a little something about incentives, so they struck a deal: each would have to lose 38 pounds in six months or forfeit half his annual income to the other. If both failed, the one who lost less would forfeit a quarter of his income.
It sounded great—who could pig out on Twinkies at those prices?— but for a while, nothing much happened, so they just extended the deadline until they both had to admit that they were getting nowhere. The possibility of extensions was undermining the discipline they had hoped to derive from their scheme, so they decided to get serious. The new rule was that if either tried to renegotiate even one more time, that would be the basis of immediate forfeiture.
I learned all this from Karlan years later on a sunny afternoon in New Haven, where I’d gone in my quest to find out just why self-control is so hard and what we can possibly do about it. Karlan is a stocky, low-key Yale professor nowadays, known for his work on Third World development. He told me he’d always struggled with his weight. It’s a familial propensity; his mother battled obesity for years until finally she had stomach-reduction surgery.
But back to graduate school, where Karlan and Romalis found that the new agreement worked. By 2002, both men had lost the weight, and as long as the stakes remained serious and nonnegotiable, they mostly kept it off. At one point, Romalis’s weight popped back up over the limit and Karlan actually collected $15,000 from his friend. He felt he had no choice. He had to take the money to maintain the credibility of their system—without which they’d both get fat.
For a while, when they were living in different cities, they kept things going by means of surprise weigh-ins; either had the right to demand one on short notice. But eventually they went their separate ways, and when I talked to them, both were struggling separately with their weight. Romalis, now at the University of Chicago, told me in 2008 that after ending his agreement with Karlan, he’d piled on the pounds. Karlan, too, gained weight in the absence of a financial penalty for doing so—until he set up a similar contract with his friend Ian Ayres, a Yale law professor. Karlan has kept his weight under control this way for years, at one point risking $50,000 on it.
Why must these disciplined intellectuals subject themselves to a Damoclean legal agreement just to control their eating? As Karlan explains it, the contracts work by counteracting the natural human tendency to prize short-term rewards—the taste of pistachio Häagen-Dazs right now—over such longer-term goals as a healthy body weight and reasonable cholesterol level. We can all make rules for ourselves; Karlan’s weight-loss contracts raise the cost of breaking them. Could he have lost the weight without a contract? Over a nice, healthy salad one sunny afternoon, he answered without hesitation: “No.”
Precommitment works, which is why Karlan set out to make it available to the world via his Web site, stickK.com, which might be thought of as the Internet’s precommitment superstore. Karlan’s venture, formed in partnership with Ayres, enables any of us to contractually control our own actions or, if we violate the agreement, to face a penalty we’ve chosen. Theoretically, it could make a Trollope of the most recalcitrant writer, allowing him to impose on himself the wanted law that cannot be disobeyed. Despite its nerdy origins, the site has a cleverly rakish motto: “Put a contract out on yourself!”
The concept is fiendishly simple. stickK.com (the second K is from the legal abbreviation for contract, although baseball fans will detect a more discouraging connotation) lets you enter into one of several readymade binding agreements to lose weight, quit smoking, or exercise regularly, among other things. You can also create your own agreement, which many of its 45,000 registered users have done. You specify the terms (say, a loss of one pound per week for twenty weeks), put up some money, and provide the name of a referee if you want one to verify your results. Whenever you fail, stickK.com gives some of your money to a charity you’ve chosen. Whether you fail or succeed, stickK.com never keeps your money for itself.
If you want a sharper incentive, you can even pick what stickK.com calls “an anti-charity.” Democrats, for instance, might find it especially motivating to know that if they fail to live up to a binding personal commitment on stickK.com, some of their hard-earned money will go to the George W. Bush Presidential Library. Anti-charities apparently are highly motivating; stickK.com says they have an 85 percent success rate. “All stickK is doing,” Karlan told me, “is raising the price of bad behavior—or lowering the cost of good behavior.”
(It should be noted that stickK.com didn’t invent the anti-charity. In a 1984 book called The Blackmail Diet, author John Bear suggested people could force themselves to lose weight by committing to some hideous consequence if they didn’t. Bear himself slimmed down by pledging to donate $5,000 to the American Nazi Party if he failed.)
You might jog for exercise this afternoon because of some vaguely hoped-for health benefit, but if failing to jog cost you $1,000, you would probably get out there regardless of the weather, your workload, or your sore ankle. And unlike Coleridge or Mr. Krabs, who in the heat of desire could all too easily countermand the orders they gave in the cool of reflection, people who sign a contract with stickK.com can’t back out. Rest assured, says Ayres, that “these are legally binding contracts. I’m a contracts professor.”
People use stickK.com to make commitments small and large. A number of users have committed to write a novel, while at least one has pledged to bring a brown-bag lunch to work. Many affirmatively commit to do something, such as pray daily or floss regularly, while others pledge to stop doing something (including at least one who vows to gradually lay off masturbating). A lot of the pledges are aimed at what might be called compulsive behavior, including nail-biting and “selfinjury.” Some, like the commitment to “stop calling my ex,” are even poignant.
People on stickK.com do seem to be conscious of incentives. One user vowed to give up sugar, for instance, and pay $10 for any week in which she failed. One day she reported a transgression in her “commitment journal”: “I ate gingerbread on April 9th. I knew I was hungry, but I had company and wanted to serve fresh baked goods. I thought I could resist it, but I did not. I only had a little bit, though. But now I’m feeling that since it cost me $10, I should have had a bigger piece.”
Precommitment and the Poor
Dean Karlan had spent a good deal of time thinking about precommitment before launching stickK.com, especially in conjunction with his other great interest, Third World finance. A few years back, he and colleagues from Harvard and Princeton set out to investigate whether people would freely choose a precommitment device to help them save, and if so, whether it would make much of a difference.
They designed an elegant experiment that produced fascinating results, which they recorded in a paper entitled “Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines.” They carried out their project on Mindanao, in partnership with a rural financial institution there known as the Green Bank. The professors first surveyed 1,777 current or former customers of the bank to assess how good they were at deferring gratification. The surveys asked such questions as, “Would you prefer to receive 200 pesos guaranteed today, or 300 guaranteed in one month?” And, equally important: “Would you prefer to receive 200 pesos guaranteed in six months, or 300 guaranteed in seven months?”
Customers who chose the sooner, smaller reward in answer to the first question but the larger, later reward in response to the second were deemed likely to have self-control problems. The researchers offered 710 of these individuals a new kind of savings account called Save, Earn, Enjoy Deposits, or SEED. These special accounts offered the standard 4 percent interest, with a single catch: withdrawals weren’t allowed until either an agreed-upon date or sum was reached. (Almost all the savers chose a date rather than a sum, since failing to accumulate the latter could mean their savings were locked away indefinitely.)
Some 202 self-aware individuals, or 28 percent of those receiving the SEED account offer, accepted—a group that skewed somewhat female. And 83 percent of SEED enrollees also bought a ganansiya box from the bank. This is like a piggy bank with a lock—except that the bank holds the key. It’s a way for savers to accumulate small sums by putting a peso or two into a box. The boxes are, of course, a poor man’s precommitment device, in this case one that echoes, on a small scale, the design of the SEED accounts.
Karlan and his colleagues found that, for the participants, SEED worked. After just a year, SEED account holders had increased their savings by a remarkable 81 percent. It was a modest experiment, but it showed that giving people the opportunity to precommit can help them rapidly accumulate capital, even if they don’t have much income.
The experiment also showed that lots of people with self-control problems know they have them. The SEED account participants mostly knew themselves well enough to purchase ganansiya boxes. This kind of self-knowledge isn’t uncommon among the Third World poor. Researchers who studied poor South Africans found that they often relied on money guards—“a neighbor or relative or friend that you trust and say, ‘Hold this, and don’t let me touch it,’ ” one researcher explains. “Sometimes the same money guard asks you to hold their money, and so when someone comes to borrow money, you say, ‘It’s not my money.’ It works.”
Back in the 1990s, when it was suggested that early-withdrawal penalties might be discouraging Americans from saving more in retirement accounts, a survey found that 60 percent of us wanted to maintain the restrictions; only 36 percent favored making it easier to tap retirement savings early. Why such a lopsided result? I think it’s because people understood how susceptible they would be to the temptation to crack open their own nest eggs—and they wanted the barrier left in place to keep themselves away.
I’m not surprised. I remember my mother, in the 1960s, dutifully making regular deposits into a Christmas club account at the local bank. On the surface, Christmas clubs make no sense; you have to make regular deposits—I seem to recall my mother having something like the kind of payment book you might get with a car loan—and receive little or no interest. Most amazing of all, the bank won’t let you have your money back until December. But, of course, this was the reason my mother signed up; the arrangement forced you to save, and it kept your savings out of your hands.
I did something similar when I worked at a big newspaper and I signed up for automatic payroll deductions into my credit union savings account. Then, every time I got a raise, I raised the savings deduction by the same amount. My lifestyle never expanded with my income, but I did build up a pile of cash. I had colleagues who used the government’s withholding of income taxes the same way. Those unfamiliar with this technique may not know that you have some discretion about how much Uncle Sam withholds from your paycheck; if you have a mortgage, kids, and other significant deductions, you should reduce the withholding to match what you’ll ultimately owe, since the government won’t pay you interest while it has your overpayments. On the other hand, you can’t access the withheld money until you file your taxes—after which you’ll get a nice, big refund. Think of the lost interest as a modest service charge, well worth it to people who know they might not save any other way.
Self-control sophisticates use the tools that happen to be at hand, as is apparent from the urban numbers racket. If you know how the lottery works, you understand the numbers game, except that the latter offers better odds.
I grew up around people who played the numbers. They’d wager twenty-five or fifty cents with a bookie on some three-digit number based on a dream or a birthday or some other likely premise, and if the number came in, they’d win. The daily number was always taken from some objective source that was ostensibly beyond manipulation; it might have been the last three digits of the day’s take at Aqueduct, for example, or of the trading volume on the New York Stock Exchange. Like many people who buy lottery tickets, many numbers players play for entertainment.
But back in the 1970s, the sociologist Ivan Light looked at numbers gambling in Harlem and saw not a diversion or even “a tax on stupidity” (the term derisive economists use for state-run lotteries) but a functioning financial system—and an effective precommitment device to help people save. What outsiders didn’t seem to understand was that Harlem residents didn’t trust—and weren’t well served by—banks. The so-called numbers racket, illegal though it may have been, partially filled this vacuum.
First, remember that the winning number is always just three digits, 000 through 999, so the odds of winning are a far-from-astronomical 1 in 1,000. And while the pot never contains millions, a winner who bet $1 might clear $500 after the customary 10 percent tip to the runner, who carries the loot back and forth. (No taxes are paid, of course.) How did this add up to a savings plan for gamblers in Harlem? Well, survey data showed that the lottery players were persistent, with nearly 75 percent playing two or three times a week and 42 percent playing daily, for years on end. In other words, they acted something like long-term investors. And they were likely to get back $500 for every thousand bets of $1 each.That may not seem like much of a return on investment, but bear in mind that many players bet with quarters, a sum that even among the poor tends to vanish unaccountably. They got some hope. They couldn’t raid their “savings” until they won. And their money also bought convenience—numbers runners made housecalls, and these visits no doubt helped people keep playing. In some poor neighborhoods of India, “deposit collectors” perform the same function. The collector gives a would-be saver a card imprinted with a grid of 220 cells, and the customer commits to handing over, say, five rupees for each cell each day. At the end, the saver would get back 1,100 rupees, less 100 rupees for the collector’s fee. Savers are happy to live with this negative interest rate in exchange for the convenience—and the commitment device.
In Harlem, numbers players also knew that their money was supporting black enterprise, local jobs, and a certain amount of neighborhood investment. But most of all, sooner or later you had a large sum of money to look forward to—and no control over when it would arrive.
“Most gamblers understand their numbers betting as a means of personal saving,” Light reported, adding: “The bettor’s justification for this seemingly preposterous misconception arises from unsatisfactory experiences with depository savings techniques. Once a numbers collector has a man’s quarter, they aver, there is no getting it back in a moment of weakness. If, on the other hand, the quarter were stashed at home, a saver would have to live with the continuing clamor of unmet needs. In a moment of weakness, he might spend the quarter. Therefore, in the bettor’s view, the most providential employment of small change is to bet it on a number.”
Precommitment and Paternalism
Perhaps not coincidentally, stickK.com has come along at a time of renewed interest in paternalism, a word that was once right up there with eugenics as a politically incorrect taboo. But lately a number of smart people, most prominently the economist Richard Thaler and the legal scholar Cass Sunstein, have suggested that the time is right for institutions to help people make better choices, by means of more thoughtful “choice architecture.” The global financial crisis, with its accompanying borderless recession, has added impetus to these ideas. At company cafeterias, for instance, the fruits and vegetables might be displayed more prominently and priced more attractively than desserts so that people will be more likely to pick healthier items. The idea is not to mandate behavior but to present choices so that the indisputably better option is more likely to be selected. It’s all about “soft paternalism.”
The classic example is the movement in business to automatically enroll employees in a 401(k) plan, with the right to opt out. This is the opposite of the traditional approach, which relies on employees to opt in. It turns out that humans have a strong status quo bias, which is a fancy way of saying inertia is a powerful force in people’s lives. In a study published in 2001, for instance, Brigitte Madrian and Dennis Shea found at one company that sign-ups among new hires rose to 86 percent from 49 percent after automatic enrollment was adopted. Reversing the default condition, which cost nothing and constrained nobody, thus significantly boosted the retirement prospects of a great many employees.
stickK.com lets people do this sort of thing for themselves. It’s a place where they can act of their own volition to make themselves adhere to their second-order preferences—their preferences about preferences. You may like to smoke a cigar, for example, but you may also prefer not to have that preference. And your rational allegiance is to your second preference—the one that lets you avoid lung cancer and the other problems of smoking. The beauty of stickK.com is that it lets people decide for themselves which longer-term goals they embrace, in effect by becoming their own paternalists. And it gives them the means to enforce their own second-order desires, just as people do when they have their stomachs stapled or their jaws wired to constrain their eating. As Vito Corleone might have put it, stickK.com wants you to make yourself an offer you can’t refuse. And what could be better than for each of us to be our own godfather?