Credible self-punishment

I was just having a discussion with a friend a week ago about how much more efficient people would be

By Alec Brandon

I was just having a discussion with a friend a week ago about how much more efficient people would be if they could create incentives to encourage good behavior (this was in the context of rewarding yourself for staying awake in a class). Of course, an important part of an incentive is that you need to view yourself as capable of punishing yourself (with a disincentive) if you fail to meet the goal. Rarely are people willing to do this. In some cases you can set it up so that failing to meet the incentive causes a punishment that you don’t control, but that hasn’t always been feasible, until now.Via Greg Mankiw:

Nalebuff thinks the weight loss will happen only if there is something of importance being risked….he suggested I enter into a contract in which I agree to pay him if I don’t drop some pounds. “As much as people don’t like to lose money, what they really don’t like to lose is their own money,” he said.In fact, some of his Yale colleagues are in the final stages of launching a business based on this very concept. They have started a company called that will allow people to take out a contract on themselves. They pick a price. If they don’t lose a certain amount of weight, they lose the money, either to a charity, friends or family. Ian Ayres, one of the company’s founders, said he hopes the Web site makes money by selling advertisements and forming corporate partnerships.”The basic idea is to let economic incentives have a chance,” he said. “It’s been very hard to produce successful results through traditional weight-loss methods.”Ayres took out a contract on himself with another of the company’s founders. He needed to get down to 185 pounds, losing at least a pound a week or forfeiting $500 for each week he failed. Sure enough, he dropped below 185 pounds. Now if his weight goes above 185 pounds, a penalty kicks in. He has avoided more than $21,000 in potential penalties. “It’s been a free way to lose weight,” Ayres said.

I wonder how big the social gains will be from the creation of an organization like this. I’m willing to bet that it won’t be non-negligible.