Thursday, September 30, 2010

Credibly Committing to Lose Weight

Ian Ayres of the Freakonomics blog is making an economically interesting choice in his effort to stay at a healthy weight. He is auctioning off his right to gain weight.

I’m predicting that I will not be paid very much. Even though I’ve had a hard time staying below 200 pounds in the past (and even include a picture of myself in one of my heavier phases), I, like Subway’s Jared, have all kinds of incentive to keep my weight in check. I’m probably one of the few eBay sellers who warns bidders not to bid too much:

If I fail in each and every week, the auction winner could receive as much as $26,000. But beware: my weight on August 4, 2010 is about 180 lbs. I intend to make sure that my weight stays below 185 lbs throughout the 52 weeks – so it is possible, even probable, that the auction winner will not receive any forfeiture money. It would be foolhardy to bid very much on this item.

The idea for this auction comes from James Hurman, a New Zealand advertising executive, who in 2008 successfully sold his smoking addiction. You can learn more about James and how you can sell your weaknesses in chapter 3 of my book.

I like the idea, but I wonder if there are some important differences between keeping weight off and quitting smoking.

With quitting smoking, the goal is to not smoke at all. That is because smoking is truly an addiction (meaning that a cigarette today makes the smoker more intensely want to have a cigarette tomorrow). Because of this addictive feature, if you want to quit smoking, the optimal contract is to sell the right to receive payment if you smoke at all.

Gaining weight isn't an addiction in the same way as smoking. That is, it isn't true that if I gain a pound today, I will want to gain more pounds tomorrow.* For this reason, the best contract to keep Ayres' weight in check probably isn't $500 payment if the weight is greater than 185 lbs and zero if it is less. If I were to sell my right to regain weight, I think I'd structure it as follows:

  • $500 if weight is greater than 185 lbs and less than 190 lbs
  • $600 if weight is greater than 190 lbs and less than 195 lbs
  • $750 if weight is greater than 195 lbs and less than 200 lbs
  • $1000 if weight is greater than 200 lbs

To see why this contract could be better than Ayres' contract, suppose that Ayres has a busy fall and lets himself go for a few weeks (as he admits that he is prone to do; see the original post). On account of this, his weight creeps up to 195 lbs (10 lbs over his cutoff). Under my contract, Ayres could save himself $250 per week by dropping 6 additional pounds, and $150 per week if he drops just one pound. Those are realistic intermediate goals that might discipline him into having better habits in the event that he has to play catch up.

But, under his contract, dropping marginal weight (less than 10 lbs) saves him nothing, and he runs the risk of just writing off $500 per week (maybe it would be too costly to drop the extra weight; After all, losing 10 lbs should take about a month.). $500 for every week he is over 185 lbs might be enough incentive to undertake an intense weight loss regimen, so it isn't like the payment does nothing for his incentives. I just suspect that having some intermediate cutoff points would make the contract more salient, and therefore, more effective.

In other words, Ayres contract gives him the right incentives to keep off weight as long as his weight is around the cutoff he chose, but it does less good for his waistline if he fails to keep off the weight. It is a great idea, and it isn't a terrible contract. But, if he's doing the auction next year, he might want to consider this modification.

*It might be true that if I gain a pound today, that signals something about my diet and exercise that implies that I am more likely to gain a pound tomorrow. But, that's not the same thing as wanting to gain more weight tomorrow, which is the essence of an addiction.

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