Yesterday, I was 15 minutes late for an appointment, notwithstanding my New Year’s vow (repeated—and failed—annually) to be more prompt. Last week, I published on my blog and social media my intention to create a web site that will apply best practices in decision science to help people make better financial decisions. Just the thought of not following through sets my stomach churning. Even more: I’m feeling irritated at my earlier self for coercing my current self to keep this commitment.
My personal vow and public promise are examples of commitment devices: arrangements that limit one’s future options in ways that seem beneficial in the present. Here are some of my favorites in personal and policy realms:
- Committing to make a contribution to a charity you despise (“anti-charity“) e.g. NRA or Nature Conservancy (!), depending on your political persuasion, if you fail to keep a promise.
- “Investing” one’s tax refund in frozen pizzas and meat so it can’t be spent on frivolous things.
- NATO‘s plan to send 3-6,000 troops to Eastern Europe as a trip wire to deter Russian adventurism.
- A carbon tax could be used to cut personal income tax rates, a benefit that would be very hard to repeal once people came to rely upon it.
- Permitting oneself to watch a favorite TV show only when exercising (“temptation bundling“).
- Save More Tomorrow, a savings plan that commits people to save future raises to counteract procrastination and temptations.
- People voluntarily keeping their money inaccessible: they may even accept negative interest rates for illiquid savings instruments.
Victor Hugo hid all of his clothes except a shawl so he couldn’t go out until he finished Hunchback of Notre Dame.
Commitment devices can be legitimate way to offset weak self-discipline and the effects of cognitive biases. I know that, when I get a seemingly brilliant trade idea from reading the financial press or see an amazing sale on camera equipment, that my emotional wish for immediate gratification could drive me to over-trade or overspend. My public views on excessive trading and budgeting are useful brakes that at least make me slow down and think more carefully before compromising my long-term values.
It’s useful to think of commitment devices as a contract between our present and future selves. Your present self knows that, in the future, outside pressure, distractions, inattention, procrastination and biases can get in the way of doing what you presently believe will be best for you. This illuminates a subtle challenge: which self should have priority? Shouldn’t your future self have more information and therefore be able to make better decisions? If you know he or she will have their rational decision-making compromised: maybe not.
I’m convinced that commitment devices can be useful if carefully self-imposed or offered as the gentlest of nudges by enlightened organizations and policy-makers. For example, our prototype website gives users the option to promise themselves not to spend more for a home than a budget that they determine with our help. To be clear, I can be very heavy-handed coercing my future self. I would certainly resent a company or website that went as far.
Comment below: how do you use commitment devices to coerce your future self?
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