Put Your Money Where Your Girth Is

Would you stick to your diet if your savings were at stake? Two professors are betting the answer is yes. The winning formula may include signing a contract to enforce the bet.

Yale professors Ian Ayres, an expert in contract law, and Dean Karlan, a behavioral economist, both entered weight loss bets. And both won. They took off the weight they pledged.

With their new company, StickK.com, they hope to facilitate personal commitment contracts for weight loss and other types of personal goals. If you don't live up to your end of the contract, StickK will give your money to charity or a person you designate. The service is free to registered users. The professors, ultimately, hope to make money through advertising revenues.

The concept behind StickK grew out of Ayres' experience with losing weight, only to gain it back again. He didn't want his wife nagging him to stay on track, so he hired a student to send him reminder e-mails and verify that he'd eaten and exercised as much as he'd pledged.

"It's easy to get distracted," says Ayres. "A nagging system was a way to keep my eye on the prize."

In addition, Ayres bet Dean Karlan $500 a week that he'd lose 20 pounds. Karlan says he was happy to take the bet, though he had a hunch he'd never win a dime of his friend's money.

Loss Aversion — Money Loss, That Is

"There are a significant portion of people who have an explicit preference for commitment," says Karlan. The commitment, or the stakes, help people act in their own self-interest. The contract helps them stay the course.

Karlan describes a recent effort in the Philippines to help smokers quit. Through a local bank, the smokers signed agreements to put their cigarette money into savings accounts and agreed to urine tests. At the end of six months, if the tests showed they had nicotine in their system, their savings were lost — given to charity.

"It was wildly successful," says Karlan. People who took up the account were 30 percent more likely to stop smoking, at least temporarily, than the smokers who didn't participate in a savings agreement.

The results exemplify what behavioral economists call "prospect theory," or loss aversion.

"What we know about incentives is that people work a lot harder to avoid losing $10 than they will work to gain $10," explains Ayres. "So something that's framed as a loss is really effective at changing behavior."

The other principal that's at work in the StickK philosophy is what economists refer to as "time inconsistency." This describes a situation where a person's preferences for today are inconsistent with their stated preferences, or goals, for tomorrow.

So I may prefer to enjoy an extra cookie today, even though my preference for tomorrow is to be slimmer.

StickK is predicated on the idea that a "commitment contract," or bet, can help bring people's preferences and actions in harmony.

"It's worked for me," says Ayres. And to keep his eye on the prize, he's still got $500 at stake each week. If he doesn't maintain his weight loss, he can still lose the money.

"The big question," says Ayres, "is can it work for other people, too?"

A New Spin on an Old Idea

Betting on weight loss may become trendy, but it's not a new concept.

"Since about 1993, William Hill, a bookmaker in the United Kingdom, has been accepting bets from individuals who want to bet on their own weight loss," says economist John Lynham, a PhD candidate at the University of California, Santa Barbara.

Lynham has published a study analyzing the results of these bets. He found the London betting house is often the winner.

"We find that about 80 percent of people lose their bets," says Lynham. Despite the failure rate, Lynham says the concept of StickK.com may be a winning one. The London betting house sets people up to lose by upping the payoff of bets on unrealistic amounts of weight loss.

With StickK, the service is structured to help people succeed. For instance, weight loss goals registered on the site must be incremental.

Lynham says if he had to guess, he'd expect more men to sign up with StickK. Men "generally have a greater tendency to procrastinate, and tend to seek out these types of commitment mechanisms more readily," he says.

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