Pragma Synesi – interesting bits

Compendium of interesting bits I come across, with an occasional IMHO

The economics of self-control

Buying willpower?  Looks like it can be done…

From Globe and Mail’s Report on Business:

The economics of self-control

There’s no better motivator for reaching a goal than the prospect of losing money if you don’t. And these days, it’s never been easier to outsource your willpower

KEN HUNT

From Friday’s Globe and Mail Published on Friday, Mar. 28, 2008 7:00AM EDT Last updated on Monday, Mar. 30, 2009 3:18PM EDT

A dozen years ago, Florida-based psychologist Roy Baumeister started a series of experiments on self-control. A typical one went like this: Hungry subjects were presented with a bowl of radishes and a plate of freshly baked cookies. Baumeister instructed some of the subjects to help themselves to as many cookies as they wanted; the rest were told they could only nibble on the radishes. After a while, each subject was given a series of geometric puzzles to solve—not knowing, of course, that they were unsolvable.

The point was to measure how long they’d keep at it before giving up. The radish-nibblers, it turned out, caved quicker than the cookie-eaters. In fact, Baumeister’s experiments consistently found that subjects who were forced to exercise self-control were the first to quit when faced with a new challenge. They were also more likely to indulge in something else (you’ll understand this phenomenon if you’ve ever quit smoking, only to gain 15 pounds thanks to overeating). His conclusion: We have limited reserves of willpower. Exercising it is tough, and once we’ve reached our limit, just about any temptation can overpower us.

That is, unless there is something else—say, a punishment—to lead us not into temptation. Where no real punishment exists, we’ll often arbitrarily institute one: Economists call these “commitment devices”—any type of restraint that binds us to a future course of action, protecting us from our own lack of self-control. A classic example: automatic monthly bank withdrawals earmarked for your RRSP; this arrangement allows us to save for retirement and foils any temptation to spend the cash now and wind up destitute later. Think of it as using economics to help us become the kind of people we want to be.

Entrepreneurs have long known that managing other people’s self-control is a rich source of profit (think Jenny Craig). With the Internet, it’s becoming even easier to outsource your willpower. The company leading the online charge is StickK, the brainchild of Yale economists Dean Karlan and Ian Ayres. The idea for StickK was inspired by Karlan’s struggle to lose weight as a post-grad at MIT. Understanding how powerful a motivator money can be, he and a colleague negotiated weight-loss contracts with one another. At stake was half their annual income. Karlan lost 38 pounds. He also pocketed $15,000 when his buddy fell off the weight-loss wagon.

StickK allows you to wager as much money as it will take to help you reach your goal—the most common ones being to get in shape, quit smoking, lose weight or run a marathon. (Other suggestions include: learn yoga, stop littering, call your mother every week, or learn 10 Spanish words a day.) Once you’ve signed a contract, you designate a neutral referee to track your progress. If you fail, the money goes to an individual or charity of your choosing. (StickK doesn’t profit if you fail—the site is ad-driven.) In an ingenious twist, for a little extra incentive you can name an organization you hate as your beneficiary. The idea is catching on: Though StickK was founded just a few months ago, over 1,000 customers have signed contracts with the company, and it has raised over $1.2 million (U.S.) from investors.

For customers of Mirs Communications, an Israeli subsidiary of Motorola, there’s more at stake than a few bucks: their souls. The company markets cellphones to ultra-Orthodox Jews that block them from calling thousands of forbidden numbers, such as sex-chat lines. Under its kosher mobile plan, calls to regular numbers are nearly five times as expensive as calls to kosher ones, and on the Sabbath, when Orthodox Jews are supposed to refrain from using technology, calls cost 100 times more than they do during the week.

Even nations need tools to help bolster their self-control. Take Norway, for example, where the national temptation to spend the incredible windfalls from petroleum reserves has been conquered with one of the most stunning displays of restraint and long-term planning the world has ever seen. Through the Government Pension Fund, 96% of all petroleum revenue is saved and invested outside of Norway, protecting its economy from the inflationary pressures and economic distortions that are so common in other oil-rich nations. By the end of 2008, the 18-year-old fund is expected to be worth half-a-trillion dollars, or $117,000 per citizen. Not a penny of the fund can be spent until decades from now, when Norway runs out of oil.

By comparison, Alberta’s Heritage Fund looks positively anemic. Only about one-eighth of the province’s oil receipts go into the fund, and in the 31 years it has been saving, Alberta has accumulated just a little over $16 billion—less than $5,000 a head. Of course, that doesn’t count the $400 in “Ralph Bucks” each Albertan got a couple years ago, at a cost of $1.4 billion.

Alberta’s choice—the immediate gratification of Ralph Bucks over long-term savings—is easy to understand. In fact, according to advances in the emerging field of neuro-economics, our brains are hard-wired to prefer short-term rewards over long-term gains. Scientists have recently used fMRI scans to study the brains of people trying to decide between different types of rewards—say, receiving $10 today versus $20 a month from now. What they found is that short-term rewards tend to excite the midbrain dopamine system. In effect, we get high just from contemplating a short-term reward. Longer-term decisions, on the other hand, are generally handled by the brain’s more logical prefrontal cortex. In the battle between the two, the dopamine system will nearly always win. From an evolutionary perspective, it makes sense: Over millions of years, our ancestors learned that a bird in the hand is worth two in the bush, and it served them well. Then again, they didn’t have to plan for retirement.

COMMITMENT’S NOT SO BAD AFTER ALL
Odysseus, Homer wrote, had his crew tie him to the ship’s mast to resist the call of the Sirens. Military leaders have been known to command their armies to burn bridges behind them or scuttle their ships, so there’s no possibility of retreat. Then there’s history’s most literal example of a commitment device: the chastity belt. Not all commitment devices need be so drastic. Economist Aaron Schiff has a few suggestions for the modern age. For procrastinators, he has proposed a combination hotel/prison that would keep you captive until you’ve completed a set task—say, writing a report or doing your taxes. He also has a new twist on gym memberships: Rather than paying a monthly fee, you’d hand over a substantial sum to the club, which would pay it back in instalments each time you showed up to work out. Couch potatoes, your time has come.

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September 15, 2010 - Posted by | behaviour, economics, neuroeconomics | ,

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