Tuesday, December 31, 2013

New Year Resolutions

Another year has completed and it’s time to look back and appreciate what you have done. Chances are, our attention will be mostly spent on things that we manage to slip up. Especially the dreaded new year resolutions that you made at the start of 2013 (i.e. If you still remember those of course)

New year resolution can be defined as an agreement that you make with your current self to enforce a positive effect on your future self. In essence it's a contract between current you and future you. We all have done this in the past and will continue to do so - lose weight, quit smoking, give up pornography, start exercising, learn swimming, work towards a promotion and the list goes on. But time and time again we fail horribly. Can we rethink our strategy behind new year resolutions in order to improve the success rate? Or are new year resolutions just a big fat farce?

In order to analyse this problem better, let’s put our attention to the world of Economics where a similar idea can be found. It’s known as a ‘Commitment Device’. In the context of the new year resolutions, let’s shrink the scope of the commitment device to a personal level. In that sense a commitment device is an effective way to force yourself into doing something that you want to do but aren't able to get yourself to do it or in most cases not persistent enough at it. As with everything to do with Economics the critical factor here is the notion of ‘incentive’ or in this context ‘penalty’. A commitment device should always be associated with a penalty.

There are several ways to establish a commitment device.
  • Establishing a (financial) penalty upon (future) you in case you falter. The penalty should be sizeable enough that it motivates you to stay on course
  • Make the commitment public thus putting your reputation on the line. With the advent of social media this is quite easy to implement now.
  • Create a large obstacle to temptations to increase the cost of succumbing to one. So the penalty here could be time, effort or money etc...

Either one or a collection of them could work in a given situation. (There are also online solutions helping you to do this - http://www.stickk.com/)

However there are several factors which influence which method has a higher probability of success.

One such factor is the nature of the action itself - i.e. whether it’s a preventing from an act or persisting with an act. Quitting or ramping down on something - be it smoking, drinking or excessive junk food is a preventive act. The obstacle oriented method or penalty driven method could work well here. If the commitment is about starting a new action - exercising - putting your reputation on the line could be more effective.

In addition, the personality and the social set up of a particular person could also make an impact. For an example a person who sits slightly high in the social pecking order (be it family or work) should opt for the reputation method where the cost of failure could be high.

So can we expect the success of the new year resolutions to improve by making sure that they comply with this framework? May be...or maybe not. My personal opinion is that it will only improve the results of a certain class of personalities albeit a low percentage.

So the more interesting question is why doesn't it work? The analysis seems logical and rational enough. Although most classical schools of economic thinking assumes humans to behave rationally, we are awfully bad at it.

The trouble is that by nature people deep down really don’t want to commit. No matter how clever the current self ties its future self to a commitment device, the future self will find a loophole (excuse) to breach it. Sometimes the problem with the commitment device is the non-linear pressure associated with it. As an example the benefit of losing a few kilos (and possibly gaining it back) might not outweigh the stress someone goes through during the committed period. This is especially true in the reputation method. At the same time we very well know that nothing will get done without a commitment.

“So what’s the sweet spot”? That’s up to each individual to find out. At least by giving it a shot you could find out what doesn't work. So that when 2015 arrives, you hopefully get better at getting something done from your future self.

Happy New Year Everyone!

The post was inspired by this freaknomics pod cast.
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