Dear Economist,
After reading with interest your plan to start exercising last Christmas (by giving to charity if you didn’t meet your goals), I’d be obliged if you could offer an opinion on a similar scheme I have concocted. Wine is the problem. I drink too much of the glorious stuff, and am unable to convince myself that doing so is unhealthy.
Your idea of giving to charity would not work with me. I’m uncharitable, I’m afraid, and would probably rather lie than give my earnings away. Here is my alternative. Each month I will deposit the total amount I would spend on wine in the family joint bank account. If I want a bottle, it must come out of this account, but whatever is left at the end of the month is to be given to my wife and children.
This appears to be an excellent solution; in my view, the guilt of taking something away from my beloved wife and children is far greater than taking from myself. Do you agree?
DW
Dear DW,
In classical economic theory, your scheme would be useless. Every pound spent on the demon drink is always a pound unavailable to your wife and children, and it should make no difference which bank account you put it in.
But Richard Thaler, a leading behavioural economist, has a theory of “mental accounting” that supports your plan. We do attach different labels to different pounds: this one is for my pension, that one is slush money. And Thaler has discovered that those labels make a difference to the way we behave.
Your scheme may well work, then. But like all commitment strategies, there is a risk that it will backfire, and you end up with the worst of all worlds. You may find yourself unable to stop drinking, feel more guilty than ever, and demonstrate unambiguously to your family that you love booze more than you love them. You evidently like to live dangerously: good luck.
Also published at ft.com.