When Commitment Fails – Evidence from a Field Experiment
When Commitment Fails – Evidence from a Field Experiment
7 July, 2020 •Similar Articles
Participation and investment decisions in a retirement plan: the influence of colleagues’ choices
This paper investigates whether peer effects play an important role in retirement savings decisions. We use individual data from employees of a lar...
Commitments to Save: A Field Experiment in Rural Malawi
This paper reports the results of a field experiment that randomly assigned smallholder cash crop farmers formal savings accounts. In collaboration...
Framing the Future: The Risks of Pre-Commitment Nudges and Potential of Fresh Start Messaging
There is growing interest in applying principles from the field of behavioral science to
shift individual decisions in desirable directions t...
Commitment products can remedy self-control problems. However, imperfect knowledge about their preferences may (discontinuously) lead individuals to select into incentive-incompatible commitments, which reduce their welfare. I conduct a field experiment where low-income individuals were randomly offered a new instalment savings commitment account. Individuals chose a personalized savings plan and a default penalty themselves. A majority appears to choose a harmful contract: While the average effect on bank savings is large, 55 percent of clients default, and incur monetary losses. A possible explanation is that the chosen penalties were
too low (the commitment was too weak) to overcome clients’ self-control problems. Measures of sophisticated hyperbolic discounting correlate negatively with take-up and default, and positively with penalty choices – consistent with theoretical predictions that partial sophisticates adopt weak commitments and then default, while
full sophisticates are more cautious about committing, but better able to choose incentive-compatible contracts.