The Cheat Sheet

Using economics to score with New Year resolutions

VENKY VEMBU | Updated on January 12, 2018

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Did you say economics?

Yup. Behavioural economists, game theorists and social psychologists have framed strategies that can help you overcome inertia and, say, cut back on smoking this year, or work out more at the gym — or, less boringly, learn Spanish or write a novel. Whatever motivates you, and where there is a test of your willingness to commit.

Okay, shoot.

The big daddy of behavioural economics is Thomas C Schelling, who won the Nobel in 2005. He did some pioneering work on “the intimate contest for self-command” — that’s the struggle we all face when we have to choose between losing weight and craving that post-prandial ice cream, or getting up at dawn to jog and hitting the snooze button.

What’s Schelling’s big idea?

Schelling introduced the notion of “pre-commitment”. At its core, it’s a theory he propounded about conflicts between nation-states. Schelling, who used to run war game scenarios for former US Secretary of State Henry Kissinger, made the point that a party to a conflict can strengthen its strategic position by cutting off some of its options to make its threats more credible. For instance, an advancing army that burns its bridges signals that it will never retreat, making its ‘fight to the finish’ threat credible.

What’s this got to do with pumping iron?

The pre-commitment idea can apply to New Year resolutions as well: paying for a full year’s gym membership is a “pre-commitment”. But if you pay for a full year and don’t go to the gym — or don’t go often enough — you lose twice over (failed resolution and wasted money). Economists Stefano DellaVigna at the University of California at Berkeley and Ulrike Memendier at Stanford have, in a 2006 paper titled ‘Paying Not to Go to the Gym’, addressed this problem of “overconfidence about future self-control or about future efficiency.” Schelling recommended other forms of pre-commitments.

Such as?

For instance, don’t ever keep cigarettes or calorific stuff around the house. This compels you to buy them when you have a craving, which gives you time to reinforce your original resolution. Another way is to eliminate carbs or cigarettes in their entirety, rather than go on a calorie-watch or smoke rationing. Schelling says it is easier to ban nuclear weapons in toto rather than place specifications on their use. Likewise, “zero is a more enforceable limit on cigarettes or chewing gum than some flexible quantitative ration.”

Bottomline, isn’t it a test of one’s will?

Yes, but financial incentives and penalties can induce behavioural change.

How so?

In a 2009 paper ‘Incentives to Exercise’, economists Gary Charness and Uri Gneezy argued that “paying people to go to the gym regularly positively reinforced this behaviour”. The effect continued long after the payments stopped: gymming becomes a habit. The finding has implications for public policy on preventive health. Likewise, a 2010 paper titled ‘Put Your Money Where Your Butt Is: A Commitment Contract for Smoking Cessation’, by Xavier Gine at the World Bank, Dean Karlan at Yale University, and Jonathan Zinman at Dartmouth College, found financial incentives helps smokers quit.

What if no one is paying me to quit?

You can disincentivise ‘bad’ habit and set goals — by betting on yourself. There are even businesses that help “build commitment”. For instance, the website stickK.com, conceptualised by Yale economists, encourages you to sign a binding Commitment Contract with yourself. You can bend the arc of free will in a positive way – and not just at New Year time.

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Published on January 04, 2017

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