Wednesday, May 6, 2009

How economics can wake you up

Ever hit the snooze button ten times before actually getting up? Once you remember the reason you set the alarm, do you regret it when you finally get up?

I recently faced this problem a day before a big midterm exam. I had no other reason to get up than to study. Studying was important. Yet, I knew that I would not be able to resist the warm folds of the bed in the morning. Come morning, I would not have the will to get out of bed to study. But, what could I do? I was in a battle with myself. I can't control how I'll feel tomorrow morning. It would seem my case was hopeless.

I turned to economics for an ally in this battle against morning sluggishness. Economists call the problem I was facing a credible commitment problem. Economists study credible commitments in many different contexts. For example:
  • Credible commitments are needed for a cartel, like OPEC, to effectively raise prices for its member countries. Yet, each oil-producing country faces perverse incentives to expand output, which deflates the price for all of the other countries. Without a credible commitment, their arrangement falls apart.
  • Credible commitments by a government are needed for ordinary people to undertake long-term profitable investments. If a government cannot credibly restrict itself from expropriating the fruits of profitable investments, all empirical evidence suggests that the investment will not occur at all.
  • Credible commitments are needed for effective monetary policy. If the Federal Reserve cannot commit to a slow rate of expansion in the money supply, the result is high inflation with no corresponding increase in output. Yet, as we have seen in every recession, monetary authorities are quick to deviate from this plan. They have a hard time making a credible commitment.

Compared to these grand policy issues, my problem getting up in the morning seemed trivial. But, my trivial issue is one that is easily solved once you take the lessons from the credible commitment literature seriously. The problem with making a credible commitment is that what looks like the best plan from the beginning (i.e., studying at 7:30 AM tomorrow morning) is incredibly costly when the time comes to act on that plan.

What does the literature propose as a solution to the credible commitment problem? Ensure that the alternatives to going through with the plan are more costly than the plan itself. For example, cartel members may agree beforehand that any member country that defects must pay disproportionate reparations to the other countries for undermining the agreement.

Applying this logic gives an array of options for getting out of bed. I just needed an answer to the question: "what can I inflict on myself tomorrow morning that would be so much torture that I will surely get out of bed?"

My solution? Make coffee the night before, and set the timer to automatically start brewing at 7:30 AM. This works for me because as an economist, waste drives me crazy. I can't stand wasting even a sip of orange juice, let alone a single cup of coffee. For me, making myself the promise that if I do not get out of bed, a pot of coffee will go to waste is enough to do the trick.

My solution works for me, but other people may not feel the same way about wasting coffee as I do. Nevertheless, the basic principle applies to anyone: discover some way to annoy yourself enough that you will surely get up. Whether your solution is setting your loud alarm in another room or enlisting your energetic friend to go for an early morning run, I am sure you know yourself well enough to know what will get you up.

Getting up in the morning is easy. All you need is some imagination and a good use of economics.

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