Dean Karlan promised to pay John Romalis $10,000 if he did not lose 38lb (17kg) by an agreed date. Mr Romalis made a similar pledge. If both failed, the one who failed by least would get $5,000. Happily, both succeeded in shedding pounds not dollars, and the initial deal was replaced with a maintenance contract which allowed either economist to show up unannounced to check the weight of the other and collect $5,000 for each pound over an agreed weight.
Now Mr. Karlan has launched a company to help others use the profit motive to reach their personal goals. At stickK.com, people can design their own commitment contracts, which impose a cost of their own choosing if they fail to achieve their goals. As part of the typical contract, you appoint an independent referee to monitor and report on your progress. Penalties range in severity from having your failure publicized on the website to having to cough up a certain amount of money (which then goes to charity).
The Commitment Contract, says the website, Is grounded on two well-known principles of behavioural economics: (1) people don’t always do what they claim they want to do, and (2) incentives get people to do things.