Jay Bhattacharya, Alan M. Garber, and Jeremy D. Goldhaber-Fiebert,
“Nudges in Exercise Commitment Contracts: A Randomized Trial.” NBER Working Paper 21406, July 2015.
• The authors implement a natural field experiment: people who browse their way to stickK.com looking to sign a contract that requires them to exercise regularly are randomized into one of three conditions.
• The three conditions differ based upon the default length of the exercise commitment contract; the default (which is easy to override) can be 8 weeks, 12 weeks, or 20 weeks. More than 8,000 people take part in the experiment (unbeknownst to them, it seems), though some of the analysis relates to approximately 3,000 subjects for whom a longer period of data is available.
• A nudge towards longer contract durations succeeds; that is, a 20-week default setting leads to longer duration actual contracts than do the shorter default terms. More than one-in-five contractors choose to put up monetary stakes – they lose money if they fail to exercise to the terms of the contract – that average $23 per week.
• Not only does the 20-week nudge result in longer duration contracts, it induces more weeks of exercise – though the average weeks of successful exercise are less than half of the specified durations.
• About 6% of the sample enters into a second commitment contract after the expiration of their earlier contract. The data suggest that people would be much more likely to sign a second exercise commitment contract if they were placed into a long (more than 18 weeks) initial commitment contract, as if the longer duration helps cement an exercise habit.
• Following the reporting of their empirical results, the authors develop a parallel theoretical model. The model offers a four-period version of a quasi-hyperbolic utility function; the four periods allow for a pre-contract period and, later, the option of signing a second contract.
• The subjects are assumed to be present biased and sophisticated about their bias – after all, the subjects are interested in committing to exercise. Exercise in the model is a habit-forming good, but one involving current costs along with future benefits. Without commitment, present-biased people will choose to exercise too little, from the point of view of their own long-run (non-present-biased) preferences.
• Small changes in the depreciation of exercise “capital” (which underpins the habit-forming nature of exercise) lead to large changes in optimal exercise choices. In contrast, even sizable changes in the degree of present bias have little impact on optimal exercise.
• The authors offer a definition of a nudge that incorporates asymmetric or libertarian paternalism: a nudge in a given period t cannot decrease the person’s period t utility by very much. (But a nudge surely will decrease that utility, that is, it cannot make the period t person better off.) And though nudges must be small in this sense, they nevertheless can have a large effect on exercise choices, in particular, by helping to promote an exercise habit. A large nudge, however, can lead to so much present exercise that in future periods, exercise is eliminated, as the subject finds it optimal to rest on his or her exercise laurels.
• Are sophisticated but present-biased people better off with a nudge? By definition, here, the person in the nudged period is not better off. Future selves can be helped or harmed, however – the overall welfare effects of nudges for a heterogeneous population are ambiguous.
• The authors implement a natural field experiment: people who browse their way to stickK.com looking to sign a contract that requires them to exercise regularly are randomized into one of three conditions.
• The three conditions differ based upon the default length of the exercise commitment contract; the default (which is easy to override) can be 8 weeks, 12 weeks, or 20 weeks. More than 8,000 people take part in the experiment (unbeknownst to them, it seems), though some of the analysis relates to approximately 3,000 subjects for whom a longer period of data is available.
• A nudge towards longer contract durations succeeds; that is, a 20-week default setting leads to longer duration actual contracts than do the shorter default terms. More than one-in-five contractors choose to put up monetary stakes – they lose money if they fail to exercise to the terms of the contract – that average $23 per week.
• Not only does the 20-week nudge result in longer duration contracts, it induces more weeks of exercise – though the average weeks of successful exercise are less than half of the specified durations.
• About 6% of the sample enters into a second commitment contract after the expiration of their earlier contract. The data suggest that people would be much more likely to sign a second exercise commitment contract if they were placed into a long (more than 18 weeks) initial commitment contract, as if the longer duration helps cement an exercise habit.
• Following the reporting of their empirical results, the authors develop a parallel theoretical model. The model offers a four-period version of a quasi-hyperbolic utility function; the four periods allow for a pre-contract period and, later, the option of signing a second contract.
• The subjects are assumed to be present biased and sophisticated about their bias – after all, the subjects are interested in committing to exercise. Exercise in the model is a habit-forming good, but one involving current costs along with future benefits. Without commitment, present-biased people will choose to exercise too little, from the point of view of their own long-run (non-present-biased) preferences.
• Small changes in the depreciation of exercise “capital” (which underpins the habit-forming nature of exercise) lead to large changes in optimal exercise choices. In contrast, even sizable changes in the degree of present bias have little impact on optimal exercise.
• The authors offer a definition of a nudge that incorporates asymmetric or libertarian paternalism: a nudge in a given period t cannot decrease the person’s period t utility by very much. (But a nudge surely will decrease that utility, that is, it cannot make the period t person better off.) And though nudges must be small in this sense, they nevertheless can have a large effect on exercise choices, in particular, by helping to promote an exercise habit. A large nudge, however, can lead to so much present exercise that in future periods, exercise is eliminated, as the subject finds it optimal to rest on his or her exercise laurels.
• Are sophisticated but present-biased people better off with a nudge? By definition, here, the person in the nudged period is not better off. Future selves can be helped or harmed, however – the overall welfare effects of nudges for a heterogeneous population are ambiguous.
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ReplyDeleteJonathan Eric Haft