As of tomorrow, July 15th, I start work at a new organization, called Innovations for Poverty Action. The organization develops and tests ideas in developing countries (and elsewhere), rigorously evaluating whether or not proposed development interventions are effective (more IPA-y-ish discussion to come in later posts). I am working as a research assistant for Dean Karlan, a professor whose work focuses on pro-poor finance, behavioral economics, and a variety of other topics.
Some of Dean’s research looks at self-commitment devices. In other words, how can someone force themselves to do an activity that they know they want to do, but which in the heat of the moment is quite tough to do, such as exercising regularly, or spending responsibly. One study of his that looks at this subject is titled “Tying Odyesseus to the Mast”, referencing the Greek hero Odysseus’ adventures with the sirens.
On Odysseus’ odyssey (sorry, couldn’t resist) home after fighting in the Trojan War, he and his ship pass the sirens. The sirens were beautiful but dangerous female woman/birdlike creatures, who would sing to sailors passing by the island they inhabited. With their beautiful voices, they would lure ships towards them, where they would then crash on the rocky shores and die. Odysseus decided he wanted to hear the Sirens’ singing, but knew if he did, he would want to swim to them and would drown. Accordingly, he ordered his crew to put wax in their ears and tie him to the mast as they passed the sirens. That way, he could hear this singing, but would be unable to attempt the swim out to them that he knew would be coming. He in effect took an action ahead of time that committed himself to making a good decision at a later time.
In his economics paper, Dean Karlan and co-authors Wesley Yin and Nava Ashraf offer people in the Philippines the opportunity to similarly commit themselves to good behavior in a slightly different (no risk of drowning here, at least not literally) but equally challenging goal: saving money. While many people throughout the world have aspirations of saving, it’s very difficult to do in practice. I would say it’s someone to St. Augustine’s prayer of “Give me chastity and continence, but not yet.” While the benefits of having money saved away are clear, it’s very easy to decide to buy the extra uniform for a kid, or get another drink at a restaurant, or do any other sort of activity that will prevent savings.
In this study, individuals had the opportunity to open a commitment savings account at a bank. This account worked like any other account in some respects. However, individuals were NOT able to withdraw any money from this account, until a certain target (either time or money) was hit. The bank refused to give them their money until this point. So for example, suppose I want to buy a new roof for my home, and it costs 40 USD. Ordinarily, I might have a real challenge hitting this target. It’s hard to say no to a child calling to ask for extra activity fees at school, or to a neighbor who has a medical emergency. While I might be able to save money initially, it’s hard to keep accumulating towards this amount and never spend the money I’ve saved. However, having this commitment account takes that challenge out of my hands. Like Odysseus, who couldn’t untie himself from the mast, households with these accounts couldn’t give away money for other causes, since the money wasn’t available to them until they reached their pre-committed target.
While this program might be of no use to a perfectly rational individual, for someone with temptations to spend, or external pressures, it can be of real value. Such was the case in the Philippines. People who were offered the chance to have such an account had 81% more savings twelve months later than individuals who were not offered such a program.
Like Odysseus and like the Filipino families in questions, I am engaging in a self-commitment device now to ensure I blog. For the seven weeks I am in Ethiopia, I WILL be blogging three times a week. In much the same way that I promised to donate to an “anti-charity”, the Romney-Ryan campaign if I didn’t study Swahili, if I don’t blog, I will be making a donation to the American Crossroads, a Super PAC supporting the Republican party. So even if there are times when I don’t feel like blogging, and I have other fun things to do (which will hopefully be the case) you will be hearing from me on a regular basis.