Commitment Device Research Articles

Some Middle School Students Want Behavior Commitment Devices (but Take-Up Does Not Affect Their Behavior).

Commitment devices impose costs on one's future self for failing to follow through on one's intentions, offer no additional benefit to one's future self for following through on the intention, and people voluntarily enroll in them. Enrollment in commitment devices reflects self-awareness that one may lack sufficient self-control to fulfill one's intentions. There is little experimental research on whether school-age children possess the self-awareness necessary to enroll in a commitment device, despite evidence that children and young adolescents have many positive intentions that they fail to live up to, such as demonstrating improved school conduct or eating healthier. We report the first field experiment examining the demand for, and impact of, commitment devices among middle school students. We offered students a commitment device that imposed future costs for failing to improve in-school conduct. When presented with the opportunity to actively opt-in (default not enrolled), over one-third of students elected to enroll. When presented with the opportunity to actively opt-out (default enrolled), more than half elected to remain enrolled, showing that changing default options can increase commitment device enrollment. Despite demand for the self-control strategy, taking-up the commitment device did not affect student behavior. These findings have implications for youth-based behavioral interventions broadly, as well as those focused on eating behaviors.

Cognition, emotion and reward networks associated with sex differences for romantic appraisals

Romantic love is a cross-culturally universal phenomenon that serves as a commitment device for motivating pair bonding in human beings. Women and men may experience different feelings when viewing the same warm, romantic scenes. To determine which brain systems may be involved in romance perception and examine possible sex differences, we scanned 16 women and 16 men who were intensely in love, using functional MRI. Participants were required to rate the romance level of 60 pictures showing romantic events that may frequently occur during romantic relationship formation. The results showed that greater brain activation was found for men in the insula, PCC (posterior cingulate cortex), and prefrontal gyrus compared with women, primarily under the High-romance condition. In addition, enhanced functional connectivity between the brain regions involved in the High-romance condition in contrast to the Low-romance condition was only found for men. These data suggest that men and women differ in the processing of romantic information and that it may be more effortful for men to perceive and evaluate romance degree.

THE RETIREMENT‐SAVINGS PUZZLE REVIEWED: THE ROLE OF HOUSING AND BEQUESTS

AbstractThe so‐called retirement‐savings puzzle is a phenomenon by which, contrary to what the standard life‐cycle model predicts, households do not run down their wealth significantly during retirement. In this review paper, we survey the literature on the retirement‐savings puzzle and we connect it with the literature on housing equity during retirement. To establish a link between these two streams of literature, we use as a framework the work of Nakajima and Telyukova (2013a, Home equity in retirement, UCSD Working Paper) and Nakajima and Telyukova (2017, Reverse mortgage loans: a quantitative analysis,Journal of Finance72: 911–950), who find that home‐ownership interacts with factors that explain the retirement‐savings puzzle, notably with the bequest motive. We complement the results by Nakajima and Telyukova by relating them to the literature on altruistic bequests, strategic bequests and housing as a commitment device, all of which give further insights on the connection between home‐ownership and bequests. We complement our review of the literature with descriptive evidence using the Netherlands as a case study.

Commitment Lotteries Promote Physical Activity Among Overweight Adults-A Cluster Randomized Trial.

The World Health Organization has identified physical inactivity as the fourth leading risk factor for global mortality. People often intend to engage in physical activity on a regular basis, but have trouble doing so. To realize their health goals, people can voluntarily accept deadlines with consequences that restrict undesired future behaviors (i.e., commitment devices). We examined if lottery-based deadlines that leverage regret aversion would help overweight individuals in attaining their goal of attending their gym twice per week. At each deadline a lottery winner was drawn from all participants. The winners were only eligible for their prize if they attained their gym-attendance goals. Importantly, nonattending lottery winners were informed about their forgone prize. The promise of this counterfactual feedback was designed to evoke anticipated regret and emphasize the deadlines. Six corporate gyms with a total of 163 overweight participants were randomized to one of three arms. We compared (i) weekly short-term lotteries for 13 weeks; (ii) the same short-term lotteries in combination with an additional long-term lottery after 26 weeks; and (iii) a control arm without lotteries. After 13 weeks, participants in the lottery arms attained their attendance goals more often than participants in the control arm. After 26 weeks, we observe a decline in goal attainment in the short-term lottery arm and the highest goal attainment in the long-term lottery arm. With novel applications, the current research adds to a growing body of research that demonstrates the effectiveness of commitment devices in closing the gap between health goals and behavior. This trial is registered in the Dutch Trial Register. Identifier: NTR5559.

A Signaling or Commitment Device? The Role of Voluntary IPO Lockup in China's Stock Market

A Signaling or Commitment Device? The Role of Voluntary IPO Lockup in China's Stock Market

Damaged Durable Goods, Upgrades, andthe Coase Conjecture

This study analyzes a damaged-goods market for a perfectly durable good in an infinite-horizon, discrete-time game. We characterize Markov perfect equilibria of this game under different buyer upgrade possibilities as a function of the common discount factor, the length of the time period between successive price changes, and the quality levels of the goods. We establish that introducing a lower-quality good (or equivalently, damaging a good) works as a commitment device only if consumers holding a durable good cannot reenter the market. When a buyer can upgrade the product, we establish that for all parameter values the Coase conjecture survives.

Physicians’ Incentives to Adopt Personalized Medicine: Experimental Evidence

We study physicians’ incentives to use personalized medicine techniques, replicating the physician’s trade-offs under the option of personalized medicine information. In a laboratory experiment where prospective physicians play a dual-agent real-effort game, we vary both the information structure (free access versus paid access to personalized medicine information) and the payment scheme (pay-for-performance (P4P), capitation (CAP) and fee-for-service (FFS)) by applying a within-subject design. Our results are threefold. i) Compared to FFS and CAP, the P4P payment scheme strongly impacts the decision to adopt personalized medicine. ii) Although expected to dominate the other schemes, P4P is not always efficient in transforming free access to personalized medicine into higher quality patient care. iii) When it has to be paid for, personalized medicine is positively associated with quality, suggesting that subjects tend to make better use of information that comes at a cost. We conclude that this last result can be considered a “commitment device”. However, quantification of our results suggests that the positive impact of the commitment device observed is not strong enough to justify generalizing paid access to personalized medicine.

Time-Consistent Monetary Policy, Terms of Trade Manipulation and Welfare in Open Economies

A key insight from the open economy literature is that domestic price stability is in general not optimal for countries that exert some market power over their terms of trade. Under commitment, a national benevolent monetary policymaker improves upon the allocation associated with stable domestic prices by manipulating the terms of trade to her own country’s advantage. In this paper, I study optimal monetary policy in a sticky-price small open economy model when the policymaker lacks a commitment device. Without commitment, the benevolent policymaker’s attempt to improve national welfare by manipulating the terms of trade can be self-defeating. By steering international relative prices the discretionary policymaker induces fluctuations in domestic prices, the costs of which she is unable to fully internalize in her decision-making. Society may thus be better off if it appoints an inward-looking policymaker who aims for domestic price stability and resists the temptation to exploit the country’s monopoly power in trade. Accounting for the effective lower bound on nominal interest rates further strengthens the case for the inward-looking policy objective. JEL Classification: E52, F41

Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences

We propose nonparametric definitions of absolute and comparative naivete. These definitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post (random) choices from menus to identify actual behavior. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent between choosing from a menu ex post or committing to the actual distribution of choices from that menu ex ante. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency. Finally, we discuss the implications of general naivete for welfare and the design of commitment devices.

Behavioral Characterizations of Naivete for Time-Inconsistent Preferences

We propose nonparametric definitions of absolute and comparative naivete. These definitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post (random) choices from menus to identify actual behavior. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent between choosing from a menu ex post or committing to the actual distribution of choices from that menu ex ante. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency. Finally, we discuss the implications of general naivete for welfare and the design of commitment devices.

The scope of auctions in the presence of downstream interactions and information externalities

We scrutinize the scope of auctions for firm acquisitions in the presence of downstream interactions and information externalities. We show that no mechanism exists that allows an investor to acquire a low-cost firm under incomplete information: a separating auction implies adverse selection and relies substantially on commitment to allocation and transfer rules. A pooling auction serves as a commitment device against ex-post opportunistic behavior and alleviates adverse selection. It can earn the investor a higher expected payoff than a separating auction, even when consistency is required as to qualify for a sequential equilibrium.

Funeral Insurance: An Inter-Generational Commitment Device?

Funeral insurance is a global phenomenon that has existed throughout history and remains hugely popular in Africa today. Yet as a distinct financial device it has received little attention. The question is why it seems, in many contexts, to be preferred over standard life insurance even though the latter is a more flexible product. This paper presents a simple model in which funeral insurance differs from life insurance in that there is a constraint on how the payout is spent. Funeral insurance can therefore serve as an intergenerational commitment device. The model’s key prediction is consistent with South African household data.

R&D Investments in the Presence of Knowledge Spillover and Debt Financing: Can Risk Shifting Cure Free Riding?

In an industry with knowledge spillover and debt financing, equilibrium investments in research and development (R&D) projects are subject to three economic forces. First, knowledge spillover among firms enables free dissemination of new technologies and produces investment synergies. Second, knowledge spillover also causes free riding: in equilibrium, firms underinvest in R&D expecting to benefit from investments by others. Third, debt financing creates incentive for risk shifting: equity holders overinvest in riskier R&D projects. We study how interactions among these forces affect a firm’s investment decisions and equilibrium industry outcomes using a three-stage game between two firms and the external debt market. We characterize subgame perfect, Pareto-dominant equilibria and show that for some parameter choices, free riding and risk shifting cancel each other in the decisions of individual firms, resulting in the first-best investments. Interestingly, for some cases, the equilibrium with first-best investments becomes possible only when risk shifting by one firm enables free riding by the other firm. We also show that debt can be used by firms as a commitment device in a multistage game. This value of debt is shared with investors, who can earn positive profits despite being perfectly competitive. This enriches the understanding of the financial pecking order theory by showing that even firms with unlimited internal capital may prefer external debt financing.This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Interface of Finance, Operations, and Risk Management.

Behavioral Economists, Human-Computer Interactions and Research Transparency

I model economists as being themselves behavioral, and not fully rational in how they implement their research. I characterize research results as a network graph of data analyses at the level of human-computer interactions that contain graph copies whenever the economist manifests behavioral shortcomings. Ethical and transparent research emerges as a unique graph. I allow researchers to hold themselves accountable with commitment devices that eliminate behavioral copies of research graphs. In so doing, I introduce a solution to the problem of the so-called garden of forking paths. Applications are based in economic theory and qualitative research for program evaluation design. The field of human-computer interaction has an important role to play in fostering research transparency in economics.

Stop the Presses! Media freedom in authoritarian regimes: A case study of Ben Ali’s Tunisia

ABSTRACTWhy did Zine el-Abidine Ben Ali introduce greater freedom of the press when he took power in Tunisia in 1987 only to start clawing back these new freedoms two years later? The article presents a general theory of such cases, arguing that dictators who face both powerful rivals within their governments and threats of social unrest are more likely than other authoritarian rulers to reduce restrictions on the news media. Freedom of the press acts as a commitment device, bolstering the credibility of the concessions that dictators in such circumstances—frequently new dictators—often promise to opposition groups. The article tests the theory on the case of Tunisia during Ben Ali’s first five years in office, from 1987 to 1992, detailing the threats he faced from inside and outside his government, and how he used press freedom to consolidate power while containing social unrest. Finally, the study shows how unforeseen political developments upended the bargain between Ben Ali and the opposition, leading to the end of Tunisia’s brief experiment with press freedom.

Climate Policy Commitment Devices

We develop a dynamic resource extraction game that mimics the global multi-generation planning problem for climate change and fossil fuel extraction. We implement the game under different conditions in the laboratory. Compared to a ‘libertarian’ baseline condition, we find that policy interventions that provide a costly commitment device or reduce climate threshold uncertainty reduce resource extraction. We also study two conditions to assess the underlying social preferences and the viability of ecological dictatorship. Our results suggest that climate-change policies that focus on investments that lock the economy into carbon-free energy sources provide an important commitment device in the intertemporal cooperation problem.

Observability Increases the Demand for Commitment Devices

Previous research often interprets the choice to restrict one’s future opportunity set as evidence for sophisticated time inconsistency. We propose an additional mechanism that may contribute to the demand for commitment technology: the desire to signal to others. We present a field experiment where participants can choose to give up money if they do not follow through with an action. When commitment choices are made public rather than kept private, we find significantly higher uptake rates. Data are available at http://dx.doi.org/10.1287/mnsc.2016.2501 . This paper was accepted by Uri Gneezy, behavioral economics.

International institutions: weak commitments and costly signals

As commitment devices, international institutions encourage cooperation by imposing costs on members who do not live up to their commitments. However, the costs that institutions can impose are limited, so that their commitment capacity is weak. Institutions can also impose costs as a condition of membership, allowing them to serve as costly signals. A model of weak commitment and costly signaling leads to a number of hypotheses about patterns of cooperation, institutional membership, and states’ preferences over institutional design. For example, existing members of an institution should impose higherex antecosts when a potential new member could either gain significant benefits from reneging on their commitments in the future, and when the new member expects to gain high benefits from future cooperation. These results are consistent with empirical work on institutions including peacekeeping and the World Trade Organization.

The effect of tax withholding on pre-retirement savings withdrawals: evidence from Canada

AbstractThis study assesses the effect of tax withholding on pre-retirement withdrawals from a tax-preferred savings account in Canada. Using a large sample of administrative tax records and exploiting inter-provincial variation in tax withholding rates over time in the identification, the withdrawal elasticity to the net-of-tax withholding rate is estimated to be approximately 0.40 for many prime-aged savers. Hence, tax withholding discourages pre-retirement savings withdrawals and serves as a de facto savings commitment device. This finding is not well-explained by rational agency, and theories of present-biased time preferences and fiscal illusion are shown to be a better explanation of such behavior.

Sunk costs equal sunk boats? The effect of entry costs in a transboundary sequential fishery

Climate change is likely to result in the uncertain relocation of fish stocks. As a result new countries will emerge that compete for the resource. Although several authors have investigated this issue, most authors assume that entry is free. Although true for some fisheries, this ignores the fact that for other fisheries substantial sunk investments are needed. In this paper I investigate the effect of such sunk entry costs in a sequential fisheries. I model the uncertainty as a shock to the stock dependent fishing costs, in a two player game, where one of the players faces sunk entry costs. I find that, depending on parameters, sunk costs can i) increase the competitive pressure on the fish stock compared to a game where entry is free ii) act as a deterrence mechanism and iii) act as a commitment device. I conclude that entry costs can play a crucial role because they can change the outcome of the game substantially compared to a similar game where entry is free.