Everyone I know says they want to spend more time at the gym – myself included. However, as an economist I’ve learnt to look past what people say and look at what they actually do. In essence, people really just wish that a previous version of themselves (them in the past) had gone to the gym and got in shape – and that they could reap the fruits of this labour now.
However, this is not the whole story. We know that people are present biased, or that the discount hyperbolically. Given this, people genuinely do wish they could go to the gym more in terms of maximising their lifetime happiness – but they can’t force the current version of themselves to get around to doing it.
That is where the genius of this gym comes in (ht Marginal Revolution). By charging people more if they don’t work out, the gym makes it more costly to not work out – if the cost is large enough, people will then go and work out. As a result, an individual can join this gym and commit to working out – as if they don’t they have to bear this cost (other examples: *,*,*,*,*,*,*,*).
Now usually, adding a cost is a bad thing – but in this case, if the pre-commitment is working, the cost is never realised. There are two ways to think about this to make it easier:
- The current version of yourself is putting a negative externality on the future version of yourself (which is not fully internalised because of you present bias) – by putting in this charge you are forcing the current version of yourself to internalise the externality, and as a result this changes behaviour.
- Over time there are a set of actions that will make you happiest – however, at a given point in time you can’t commit to doing the action that will cause this (because of your present bias). By imposing a cost on doing the “wrong” action you can shift your own choices towards the “correct” action.
When it comes to pre-commitment and the ilk I love the idea of voluntary pre-commitment devices, that people can choose to opt into. The more business gets involved with this, and the more government supports the institutional arrangements that allow this, the better.
However, remember that having a pre-commitment mechanism that people can opt into is very different to “forcing” people to do something.
In the gym example, we could “solve” the “problem” of people not going to the gym by forcing them too – we could even use “evidence” by basing the amount we force people to go on surveys. However, such a “solution” is forced on a myriad of different people who would make different choices. Furthermore, as we said at the start, some people will just say they want to go more – when in reality they don’t, they just wish that a the previous version of themselves had done it so they could free-ride on the fitness (which is a durable good).