Commitment Devices: Tying Your Own Hands

How people use commitments to stick to their goals despite temptation, from savings accounts with locks to public pledges.

Many people want to save more, exercise more or quit smoking, but struggle when the moment comes. A commitment device is a way of limiting your future options to help you stick to your goals.

The idea

The classic example comes from Homer’s Odyssey. Ulysses wanted to hear the Sirens’ song, which lured sailors to their deaths. He had his crew tie him to the mast and ordered them to ignore his pleas to be released. He knew his future self would give in to temptation, so he removed the option.

Economists connect commitment devices to present bias: people give too much weight to immediate rewards compared with future ones. Someone who plans to save next month may spend the money when next month arrives. Commitment devices help the planning self control the tempted self.

Examples

Savings accounts with withdrawal limits, such as fixed deposits with penalties.
Automatic payroll deductions for retirement.
Public pledges, where failing would be embarrassing.
Commitment contracts, such as websites where people put money at stake and lose it if they fail to meet a goal.

Evidence

In a well-known study in the Philippines, Nava Ashraf, Dean Karlan and Wesley Yin offered some bank customers a savings account that restricted withdrawals until a goal date or amount was reached. Around a quarter of those offered chose it, and after a year, their savings were substantially higher than a comparison group’s.

Research by Richard Thaler and Shlomo Benartzi on the “Save More Tomorrow” plan let employees commit in advance to raising their retirement savings rate when they received future pay rises. Savings rates rose significantly.

Saving tomorrow's raise

An employee finds it hard to save more now, because every rupee of current pay seems needed. But they agree today that 3 percent of each future raise will go to savings. When the raise arrives, their take-home pay still rises slightly, so they barely feel the loss, and their savings rate climbs over time.

Limits

Commitment devices only help people who recognise their own self-control problems. Too-strict commitments can backfire if circumstances change, such as needing money in an emergency.

Thinking needing a commitment device means weakness

Almost everyone faces self-control challenges. Recognising this and designing ways around them is a smart strategy, not a failure. Many successful savers rely on automatic systems rather than willpower.

Key takeaways

A commitment device limits future options to help people stick to goals.
It addresses present bias, the tendency to overvalue immediate rewards.
Restricted savings accounts in the Philippines raised savings substantially.
Save More Tomorrow increased retirement saving by committing future raises.