New commitment devices
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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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