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New Commitment Devices. Jon Zinman Dartmouth College (joint work with Dean Karlan) AEA 2010. Terms of Engagement. “Commitment” and “commitment device” can mean many things Here, arrangements that: Voluntarily restrict a consumer’s future choice set by changing prices

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new commitment devices

New Commitment Devices

Jon Zinman

Dartmouth College

(joint work with Dean Karlan)

AEA 2010

terms of engagement
Terms of Engagement
  • “Commitment” and “commitment device” can mean many things
  • Here, arrangements that:
    • Voluntarily restrict a consumer’s future choice set by changing prices
    • Are taken primarily with aim of changing one’s own future behavior (goal attainment)
    • Are not taken strategically to influence the behavior of others
quick motivation
Quick Motivation
  • Commitment contract for smoking cessation (Gine, Karlan, and Zinman 2010):
    • “Committed Action to Reduce Smoking” = “CARES”
    • Smoker posts money with bank (= contract provider)
    • Bank administers urine test after 6 months
    • Smoker gets money back if passes, forfeits money (to charity) otherwise
  • Large intention to treat effects: offering the contract increases quit likelihood by 3-4pp (40%)
    • This effect persists in surprise tests 6 months later
motivation some puzzles in cares results
Motivation:Some Puzzles in CARES Results
  • Given large treatment effects, why is takeup rate only 11%?
  • Among takers, why is success rate only 34%?
  • Some explanations have little to do with commitment features
    • Learning about new product
    • Quit dynamics: trying to quit is itself a good
  • And/or… sub-optimal features of the contract?
new commitment devices some issues and thoughts
New Commitment Devices:Some Issues and Thoughts
  • My approach
    • Issues with contract/program design
    • Thoughts on how to improve
  • Caveat: all speculative
    • More theory needed
    • More empirics needed
issue 1 framing given other biases
Issue 1.Framing, Given Other Biases
  • Commitment typically thought of as a solution to time-inconsistent preferences
  • But what if people have other biases as well?
    • Limited awareness
    • Limited attention
    • Cued consumption (the Pavlov Problem)
  • Also (won’t talk about today):
    • Loss aversion
    • Projection bias
    • Exponential growth bias (how much would you save on cigs over lifetime if stopped smoking?)
issue 1a limited awareness
Issue 1a.Limited Awareness

Limited awareness of:

  • Nature of self-control problem will depress takeup (“naifs”)
  • Extent of self-control problem will lower success rate, conditional on takeup (“partial sophisticates”)
issue 1a dealing with limited awareness
Issue 1a.Dealing with Limited Awareness

Convert naifs, partial sophisticates into sophisticates?

  • By providing information at signup: : “Most people of your age, who smoke as much as you, require a stronger commitment to succeed. How about increasing $, or adding your spouse?”
  • By debiasing at signup:
    • Get people to think about past (failed) quit attempts
    • “Have you considered a stronger commitment”

Provide stronger defaults re: contract terms?

  • I.e., not clear that encouraging customization is optimal, even if there is consumer heterogeneity
issue 1b limited attention
Issue 1b. Limited Attention
  • What we often think of as self-control problem may be inattention to future
    • Reminders for making savings deposits more effective for “hyperbolics” (Karlan, McConnell, Mullainathan, Zinman)
  • “A goal is not a plan”
    • Psychologists find that people think more normatively, and not sufficiently instrumentally, about the future
    • (Delivering/discussing papers)
issue 1b dealing with limited attention
Issue 1b.Dealing with Limited Attention
  • How convert daily struggle for commitment into a smaller set of key decisions?
    • Auto-enroll
    • Buy a patch
  • Solutions here:
    • Process commitment (wealth habit: commit to sign up; commit to wear patch)
    • Bundle with reminders
issue 1c dealing with cues
Issue 1c.Dealing with Cues
  • Debiasing and planning at takeup?
    • “Are there situations that make you want to smoke? How do you plan to deal with those situations?”
    • “Have you thought about how you might avoid those situations?”
  • Smart defaults based on intake questions?
    • “Would you like to make another commitment to [not smoke at work]?”
issue 2 substitutes or complements
Issue 2.Substitutes or Complements?
  • Can commitment make standard treatments more effective?
    • Nicotine replacement therapy
    • (Financial planning/counseling)
issue 3 building a mass market
Issue 3. Building a Mass Market
  • Market providers: tension between over-the-counter approach and binding enforcement.
    • How well do self-reports or peer-reports work?
    • I.e., how costly is it to lie, or get your friend to lie, to the intermediary?
  • Large employers may have strong incentives: commitment → better health → lower insurance costs, higher productivity?
  • Focus so far on health, with bonuses rather than commitment contracts (Volpp et al)
    • Expand to financial health? (Carrell and Zinman)
    • Possible that commitment is even more effective than conditional cash transfers?
      • Due to loss aversion
summary
Summary
  • Preliminary evidence that commitment devices can be a useful tool
  • Preliminary evidence that we’ve only scratched the surface on optimal:
    • Design
    • Framing
    • Bundling
  • More R&D needed
    • Interplay between theory and fieldwork
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