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Business Life: Resolutions special

First published Business Life magazine, January 2008

Are you keeping your new year’s resolutions? If not, perhaps you should turn to economics for help.

That might seem like a strange piece of advice, because the staple of economic models, “rational economic man”, does not suffer from a nicotine habit, nor impulsively grab chocolate bars at the supermarket checkout. If the vice is worth the health cost, he indulges it; if it is not, he does not. Rational economic man needs no resolutions.

But some economists have spent a lot more effort thinking about our human frailties. The first was Robert Strotz back in 1955, and the most famous is Thomas Schelling.

Schelling is an economist who became a cold war strategist. It was Schelling who suggested that Washington and Moscow should be connected by a direct hotline, the “red telephone”; he advised John F. Kennedy during the Berlin crisis; he won the Nobel prize for economics in 2005.

More to the point, along the way he had terrible trouble giving up smoking.

Schelling realised that the same strategic thinking that could outwit the Soviet Union might also be used to defeat the weak-willed inner smoker. Kennedy raised the stakes over Berlin and Cuba; Schelling believed that raising the stakes might also help an addict stop smoking. The simplest method: make a bet with a friend that you’ll quit.

Now three entrepreneurs from Yale University are taking these ideas to the next level. They are the economists Ian Ayres and Dean Karlan, and a business school student, Jordan Goldberg. They already have a dizzying network of bets with each other. (For instance, if Dean Karlan’s graduate student discovers that Karlan is not doing his regular exercise, Karlan will forfeit $500 to Ian Ayres, who will give $400 to charity and $100 to… Dean Karlan’s grad student.)

Now they are setting up a business to bring “commitment bonds” to the rest of us. The logical next step was to step up a website to automate the process. If all goes well, Stickk.com will be up and running by the time you read these words.

Stickk.com takes a deposit from you and monitors your progress – typically, with an honour system. (Curiously, the honour system works.) If you fail to stick to your commitment, Stickk.com starts wiring chunks of your money to a nominated charity.

I am the first customer. If I do not do 200 press-ups and sit-ups a week for three months, a worthy charity, DC Central Kitchen, will be $1000 richer. But one month in, I reckon my money is safe. You don’t have to be rational economic man to respond to incentives.

1st of January, 2009Other Writing • Comments off