>> Kim Ricketts: My name is Kim Ricketts and I'm here to introduce and welcome Ian Ayres
who's visiting us as part of the Microsoft Research Visiting Speakers Series.
Ian is here today to discuss his book Carrots and Sticks: Unlock the Power of Incentives to Get
Things Done.
How many of us have made goals for ourselves that come up short? The new science of
behavioral economics or the science of punishments and rewards can teach you how to tailor
incentives and get things done.
Ian provides a toolkit to help people in organizations meet both personal and professional goals.
Ian Ayres is an economist and lawyer who is the William T. Townsend processor at Yale Law
School and is a professor at Yale School of Management. He is a columnist for Forbes
magazine and an author of ten previous books, including Super Crunchers, which he was here
speaking about a couple of years ago.
Ayres served for seven years as the editor of the Journal of Law, Economics, and Organization,
and in 2006 was elected to the American Academy of Arts and Sciences.
Please join me in welcoming Ian Ayres back to Microsoft.
[applause]
>> Ian Ayres: Thanks a lot. Thanks for coming out. I thought I'd start with a fairly simple
question. Imagine that you could trust me that I actually was going to give you money, and
which of these two options would you prefer: To get $200 in six months or $300 in 7 months.
And I'm going to count to three and I'd like you to either shout out 200 or 300. One, two, three.
Oh, good. Now, I heard a little bit of a mixture here. Raise your hand if you said 300. Yeah.
So mostly it's $300, right? And this is pretty simple. If you trust me, it seems like you should be
a little bit patient to get this extra amount of money. And that's -- and you are giving the same
answer that most people give when they ask this question.
But what's interesting is if you ask a very similar question about ask people whether they want
$200 today or whether they'd choose $300 one month from now, still one-month delay, but there
are much higher proportion of people that become impatient as the time to the choice shortens.
And this is called present-biased preferences. And it's this preference to grab for the money or a
benefit that is just in front of us is been -- been played around with by a lot of behavioral
economists and psychologists is one of the problems of willpower.
>> Audio Playing: Can pigeons read? This one gives every indication because it's being told to
distinguish between two words to behave appropriately.
>> Ian Ayres: And here is an example of one of the Skinner-like boxes that helps give pigeons
incentives. It turns out pigeons have displayed just the same kind of present-biased preferences
as humans do in that earlier experiment; that pigeons, if they're given a choice between having
five grains of seed or 10 grains of seed, if they'll wait four extra seconds, they will be patient if
that choice is given to them in the future.
And, matter of fact, this is a slide that talks -- and the beautiful thing about pigeons, they work
cheap and you can -- thousands, 50,000 times they ran this experiment and they just varied,
sometimes if they hit one lever they got one set of food in after 12 seconds, and another lever
they would get twice the food if they waited four extra seconds.
And if you put the two-lever choice out in the future, they're fairly patient. But just like humans,
if they again get to double their food for waiting, they won't wait if it's a choice between two and
six sends; that it's not just humans, but a lot of animals have this present-biased preferences.
And what I really love, though, about these pigeon experiments is if you put in a third -- a third
lever that gives -- that is a disabling lever that gives the pigeons the ability to tie their beaks to
make a commitment not to have the temptation of going for the small amount of food, about a
third of pigeons engage in a kind of commitment device.
And this is so -- and I think this is, again, another way that we might be like pigeons. Humans -not everybody can bring themselves to use pigeon device -- to use commitment devices. But at
least a minority of humans can. I care passionately about this. I'm a cofounder of a Web site
called stickK.com, s-t-i-c-k-K.com, where you can go and set a goal and choose the kinds of
accountability, layers of accountability to reach that goal.
So you can choose to lose weight or exercise regularly, quit smoking. You can -- one of my
contributions is you could -- you can enter into "I commit to" and then there's an open text box
where you can put in any goal that you want.
And you can then choose, for example, how many times a week you want to exercise. One thing
that's really unusual about this Web site is you can put money at risk. You can put your money
where your mouth is. And here's somebody that put a hundred dollars at risk. And you can
choose whether or not you want to be your own referee and on your honor contract, we call it.
Or you can choose a third party. And at all these dimensions you're in control.
And you also get to choose who your supporters are. This isn't going to come back and talk
about this, but you give us a set of e-mails and then we commit to tell those people whether or
not you succeeded in reaching your commitment.
And the basic idea of stickK.com is it helps you increase the price of vice. You might have liked
smoking beforehand, but now it's going to cost you some money if you continue to smoke. How
much is your choice.
And this little company has passed a few market tests. People have put about $5 million at risk
so far, and we have 50,000 registered users. And most importantly there is a 75 percent success
rate. About 25 percent of the dollars per risk are forfeited, but 75 percent of them -- of the time
we don't -- our users don't forfeit their money.
By the way, since there are probably some coders in the room, I -- this was -- it gave me a new
appreciation for the difficulty of coding. And I sat in the coding room up in Montreal at a place
called Summit Tech as we were desperately trying to make a New Year's launch about two and a
half years ago or two and three quarters years ago.
So these commitment contracts, I'm going to be talking a lot about personal commitment
contracts. But I do want to emphasize that these are contracts that can help you professionally.
They can be used on the job.
And one of the places that stickK is helping corporations is in wellness programs. Bene-Comp
has a five-part program to help people get -- become healthier, and this is really important to
keeping health care costs low.
And we've also worked with Staples. Staples has had a StickK to it! Business Challenge. And
one of the things that was very savvy about Staples is they realized that one of the problems that
their customers have is procrastination. A barrier to using, to buying from Staples is that you
just put off things you want to do. You want to upgrade your Wi-Fi router, but life gets in the
way. Or you want to start using QuickBooks and you just don't get around to it.
So Staples, and it's so online, they started giving easy points, a carrots program, that you could
redeem for cool stuff if you would make a commitment, if you'd sign up supporters, and if you
would follow through on doing it. And this could be commitments to redo your resume or to
finish a business plan, but it also could be commitments to green your office with recycled paper.
Turning to the personal, these commitment contracts can really help you change your life. I've
developed something called the $500 diet. It's a very simple idea. It's a different kind of diet
plan. Could you lose a pound next week to save $500? If you had a choice between either
losing a pound or losing $500, which would you do? And lots of people would prefer to lose a
pound, could bring themselves to lose a pound.
And this diet plan, which, by the way, is going to be a published separately I think in time for
New Year's resolutions on January 1st, most diet plans focus on what you should put in your
mouth. And that's not this diet plan. My claim is that information isn't the problem. You
already know that if you want to lose weight, you should eat a little bit less or exercise a little bit
more. The big problem is that people don't have the right incentives. So my seven-part plan
focuses on you choosing the right goals and then changing your incentives with the right kinds of
commitment contracts.
And, by the way, I care passionately about this. This is my own diet history from a couple of
years ago. I used to have a BMI over 25 which made me medically overweight. And these two
lines represent -- the blue line represents my forfeiture weight. I put $500 at risk a week. And if
my -- the red line was my daily weight, if my daily weight went over the blue line, I lost $500.
And, to be honest, this kind of a drop isn't so impressive. Lots of people, when they diet -- and
indeed I three or four times before had been able to lose weight. What's -- but what's really
impressive is that it has gone -- that it's flat after this. So many times in the -- after six months
people regain weight. And I didn't.
So what is this book Carrots and Sticks about? Well, one way to talk about its thesis is that if
you want to tailor it, the book is trying to help you craft the right kind of incentive contracts, the
right kinds of commitments and incentives. And one way to stake the thesis is that crafting the
right kind of incentive, it's a lot more than just setting the right price.
And this -- you can hear here the actual voice of B.F. Skinner. And he's the father of positive
and negative reenforcements. Here he has used food to teach pigeons how to play ping-pong.
And when one scores a point, it knows it can go down and get food.
Carrots and sticks are important. Setting the right price is important. But my claim is that it's
more than just setting the right price and that other people matter, mindfulness matters, framing
matters, and that if you really want to be successful, you have to get the right price and attend to
close to a dozen other dimensions of incentives.
One place that you can think about this is thinking about anti-incentives.
And Zappos does something very interesting with new employees that I'd call an anti-incentive.
After their initial training of three or four weeks, on the last day they separately pay you for your
training. And on the last day they offer you $2,000 to quit. And this is a very strange thing.
You know, normally you incentivize people to do the things you want them to do. Here they're
giving you incentive to do -- I call it an anti-incentive because it's incentive to do the opposite of
what you want them to do.
What's going on here? Well, in part Zappos says if you took the offer they don't want you to
work for them. So it's kind of a filtering device. But there's another thing that I think is really
important that's going on. This anti-incentive, the key to an anti-incentive is it tempts people and
they resist the temptation.
98 percent of new employees turn down the offer at Zappos. And so it's a very cheap offer to
make because almost none of them take it. And they lose the employees they didn't want. But
here's the thing: The employees that resist by the offer, by resisting they learn something about
themselves. And it actually keeps them on the job longer because, one thing's for sure, is if after
you turned down $2,000 to quit, you're not going to quit two months later for nothing. Right?
So that -- because it would be -- seem like internally a fool, like why am I doing it now for
nothing?
So one of the ways is in thinking about the right price is sometimes you might even want to have
a negative price in order to do this. Another way to think about anti-incentives is as another
response to a classic experiment on Israeli day cares. This is written up in Freakanomics and
some other places as well. It's a very well-known study.
Day cares were having problems with parents showing up too late. So they did a randomized
experiment where some of the day cares started to impose fines if parents showed up late. And,
perversely, the parents showed up late more often when they were fined. And the psychological
lesson from this, which is an important one to keep in mind is that incentives can disrupt social
norms. And you used to feel guilty about showing up late and now parents who were fined said I
don't feel so guilty because I paid the price for it.
Well, and so most people then say the reaction to this is that you shouldn't use incentives. But I
say to you you might try to use an anti-incentive, where if you show up late, we're going to give
you money. But the catch is it's going to come from the poorest day care worker here.
And now instead of feeling less guilty, you'll feel more guilty. Because who are you to be taking
money from this poor person who's been taking care of your kid.
And so it's paying attention to the social norms but trying to put them on steroids instead of
disrupting them.
So this idea that other people matter, it matters because you care about the not taking money for
a day care worker, but they matter also because people might pay you to make a commitment.
And here's a great example.
>> Audio Playing: Hi. My name's James Herman. I'm from Auckland, New Zealand, and I'm
selling my smoking habit on the Internet.
>> Ian Ayres: Now, he, by the way, is an ad exec. That's a kind of a compelling idea. He's
auctioning his smoking addiction. What does that mean? Well, less poetically, what he has done
is he has auctioned his right to receive forfeitures on a commitment contract. He committed to
pay a hundred dollars a cigarette for any cigarette he smokes in the future. And so the winning
bidder gets the right to receive any forfeitures if there are any on his commitment contract.
By the way, one of the things you have to worry about with this kind of -- if you were going to
think about bidding, is he really a smoker, I found out -[audio playing]
>> Ian Ayres: So is he -- that little clip convinces me a little bit that he's a smoker since I can do
that very well. I think he's had some practice there. And I have -- just last Friday I have
followed in the great James Herman's footsteps. I -- three or four times in my life I've weighed
over 200 pounds. I've been an yo-yo'er. And I went on eBay and I had this item: Buy Ian
Ayres' right to gain weight and earn between zero and $26,000.
Where does that $26,000 come from? Well, remember, it's the $500 diet. And so the winning
bidder gets the right to receive forfeitures for the next year. And if I forfeited for 52 weeks in a
row, that would be $26,000. And I'm trying -- I gave a lot of personal information. I also
included this warning. It would be foolhardy to bid very much on this item. You don't have any
sellers that say that on eBay.
But I wanted to make -- I said expressly you -- it's possible, even probable, that you might not
get any money on this because I have all kinds -- like Jared of Subway, I have all kinds of
incentives to keep my weight low. I'm promoting a book, all kinds of stuff.
But notwithstanding this warning, on Friday it closed and there were 23 different bidders, 45
bids, and I got $282 for this. And these are from strangers. These are nonaltruistic strangers.
By the way, if you do a little bit of math on it, it would be this is implicitly thinking that I have
about a 1 percent chance of forfeiting in any given week would justify a $282 bid. And now
282, I don't know whether you -- we could argue about whether it's a lot or a little relative to
$26,000, it's not very much. But on the other hand, I've been doing these contracts for years and
not getting any money. And now suddenly somebody is paying me to do what I was going to do
anyway.
All right? Before I would, you know, donate it to charity, but now I'm donating it to a person
who gave me $282. And, by the way, I like the fact somebody -- when I blogged about this,
somebody said, oh, you should commit to give the money to charity. No. If you think about this
more strategically, I want there to be some antagonism between me and the winner of this so that
they help keep me on my -- on the straight and narrow.
So other people can also matter because they can help you choose your goal. I just said in some
ways this eBay auction was also a prediction market. If it went for $25,000, that would be a
market signal that people thought I was going to fail.
But there's another way you can harness the prediction market, and you can actually have an
auction. This is going to be the nerdiest slide I'm about to throw up. You could have an auction
that lets people choose your goal for you.
So imagine that Rush Limbaugh wants to have an 80 percent chance of losing a certain amount
of weight, but he doesn't know how much it is.
By the way, there's lots of empiricism that people are very bad at choosing their own weight loss
goal. They choose goals that are too large and unworkable.
So what could you do? Well, imagine a bizarre auction where instead of bidding dollars people
bid what the forfeiture weight would be. And the winning forfeiture weight, the largest
forfeiture weight would then get the right -- would have to pay $2,000 to Limbaugh but would
receive $10,000 if Rush did not -- does not end up weighing less than the forfeiture weight, than
the winning bid, which is a forfeiture weight.
And so if you'd thought about that and let's say you and I were bidding, I might start off and say,
well, I'm pretty sure Rush will not weigh less than 80 pounds. Okay? That would be very hard
for him to get down that low. And I'd be happy to give him $2,000 because I'd be almost assured
of getting $10,000 because he won't weigh less. But then you might then bid up, well, you might
think he might -- you'd be pretty sure he wouldn't weigh less than a hundred pounds, and I'd go
to 150 and you'd go to 180. And the market would keep bidding up to the point till there was
about a 20 percent chance. And it's a way of using the market. And sometimes other people -so how do other people matter. Other people sometimes can set your goals better than you can.
They're not as psychologically biased about this.
So other people matter -- and this is really one of the most important -- because we care about
them. We care what they know about us.
And in Japan you can sign up for virtual housewives who will nag you if you're not eating well.
Now, this I find -- if you look at it carefully, it's -- the sexism of this is rather icky, and I'm
moving on from it. All right.
But this idea that you care about other people, it also comes up in the supporters dimension of
stikk.com, where you can let it give us e-mails and we'll tell your supporters whether or not you
succeeded.
One of the really fun things about writing this book is that I talked with dozens of people entered
into commitment contracts. One of the guys I talked to is Justin Noble. And he made a
commitment contract, a custom-designed contract, to go to church, and I started talking to him
about it. And this often happens. He first made a commitment to get to work on time, something
that some of you might need here at Microsoft, and it worked like gangbusters for him. So he
took it to the next level. He said I'd like to go to church.
And in talking to him, Justin revealed to me -- and, by the way, put money at risk to go to
church, set up a referee, his girlfriend. And I was talking to him and he basically admitted
something came up and he started cheating and he didn't tell stickK the truth and his girlfriend
didn't call him out on this.
And what's the problem here with -- now, by the way, there is a higher referee that would -- to
Justin. You know, he believes in God and he was willing to cheat on a commitment to go to
church. It's a little bit ironic, right?
But what could he have done differently. And the mistake I think Justin made is he didn't give -if you're going to do a stickK contract, really important, even now I believe putting money at risk
is the most important type of accountability.
But I now believe that the second most important, even more important than a referee, is to have
five supporters. And you see if Justin had named his priest and five members of the vestries as
supporters, he would not have lied about going to church. Because, see, the supporters get an
e-mail from stickK saying whether or not you said you went to church.
And he not only wouldn't have lied, he probably would have gone to church. You know, there's
a real safety in numbers. And so if you want to succeed in this goal setting, let people know not
just about the goal but give them a mechanism of whether or not you followed through.
LeBron James still biting his fingernails. And if he wanted to stop, he just needs to tell us.
That's the kind of commitment where you just need to look at his fingers and you know whether
he's doing it or not.
Other people matter because we care whether they are helped or hurt by our success. And does
anybody -- can anybody tell me here what this is a picture of? And I'll give you a hint. It is our
most popular anti-charity at stikk.com. An anti-charity is a charity that you don't support. And,
see, besides putting money at risk, you can make the commitment more solid by putting at risk
that it will go to a group that you don't like.
Our English users sometimes choose soccer clubs or football clubs that they don't like. And so
some people here couldn't stand giving money to the evil Yankee empire.
But this is our most popular anti-charity. It's the George W. Bush Presidential Library. But we
are nonpartisan and we have all of our -- all of our anti-charities are paired, so you could also
give to the William Jefferson Clinton Presidential Library if you preferred.
Another way that other people matter is that you'll sometimes want commitment contracts not for
yourself but for other people. I sometimes have a response that people say, look, Ian, I just don't
have a problem keeping my commitments, I don't need stickK. And one answer I have is, well,
you need stickK because there are other -- you interact with other people who don't keep their
commitments.
And this last book that I came to Microsoft on, Super Crunchers, I was asked several times by
Simon Usborne, an English journalist, who if I would talk to him on the phone about Super
Crunchers. And I of course said yes. And he kept blowing me off. He blew me off -- that
wouldn't be the right thing to show up in the middle of a fancy presentation -- he kept blowing
me, off. And after he blew me off three time, he'd still say, oh, you probably don't want to
reschedule yet again, but I'm available on this particular time and day. And this is actually an
e-mail I sent to him: How about promising to give 50 pounds do the MS Society.
And I added on this true fact that my mom died of MS to really emphasize that I was being
serious about this. And -- but I want my phone to ring. And he faithfully replied your phone
will ring.
Now, in a subpart of my life I teach contracts. I even have a contracts casebook. There is a
strong likelihood that he just entered into the contract with me. That even though that's
somewhat ambiguous, ambiguities in response to an offer count in London where he was
e-mailing from. And it counts, by the way, here if any of you get into this circumstance.
But you know what? I -- it's not apparent what the law is. It's important what he thought the law
is. And I think he was trying to thread the needle here to get me to go while leaving himself an
out. And the dirty dog didn't call me and he didn't give any money to the MS Society either.
And indeed this story is one of the things that drove me to want to create -- cofound stickK,
because now there's another thing you can do, and you can just say sure, I'll do it, but go onto
stickK and put 50 pounds at risk and make me the referee of the contract and I'd be happy to do
it.
Same thing happens with dentists and doctors. They have patients that blow them off not two or
three times but four or five times, and physicians at some point just say no, I won't take another
appointment. But, instead, what they could do: I'll take your appointment, but only if you put
some money at risk. And, by the way, the appropriate response is: I'll put money at risk if you
also put money at risk that you don't keep me waiting too long in the doctor's office.
So other people matter. Let me say a little bit more quickly about two other dimensions,
mindfulness matters.
>> Audio Playing: Lily Nelson, the recovering "like" addict, the worse I've ever seen, so like
bad that the entire eighth grade started her calling "like Lily like Wilson," until I made my
classroom a like-free zone and she could not speak for days.
>> Ian Ayres: So that's a bit from Taylor Mali. He's a wonderful slam poet talking about the
like speak. Now, I think his -- you know, as a teacher, it's not a great pedagogical sign when you
stop a student from talking for days. He's a little bit too proud of that.
And I have a different reaction. My kids have also been struck by the plague of speaking of like
speak. But instead of prohibiting it, I instead have used a mindfulness intervention where I just
say softly "disco" when they inappropriately say the word "like." And sometimes I'll say disco
one, disco two, disco three, and if, you know, they get up to disco 35 within a single
conversation, it tells them something about how often they are misusing like. And it's just softly
enough so it doesn't interrupt them.
And the interesting thing that happened with this, I really -- this might be one of the more
important things I tell you in this entire talk. A very helpful intervention, stage one is that my
kids didn't stop saying like inappropriately but they started inserting disco into their speech itself.
So they say "I like disco went to the store and my friend like disco."
But then they stopped using it as much. And indeed, let me be clear, my goal isn't to stop them
from ever speaking like speak, but I want them to be bilingual. And as a professor at Yale Law
School, when I have people that are about to go out and practice law who can't turn off the like
speak, they're at a disadvantage. So the disco trick is one that is useful to do.
And beyond this trick of -- beyond this trick of like speak, mindfulness is tremendously
important when it comes to weight loss.
And this is the core picture of a wonderful randomized experiment of the impact of Weight
Watchers versus just an informational diet. The control group at random was given just
traditional information, which is: If you want to lose weight, eat less. Which like you didn't
really need to know that. But these are people that want to lose weight. They were all medically
overweight or obese.
And Weight Watchers does well for six months. But then over the course of the next year and a
half, it comes back so that at the end of two years they have just lost about seven pounds. And
these are people that wanted to lose 40 pounds, needed to lose at least 25 pounds. And so it's not
a lot.
And what's going on, by the way, I could show you other slides, same thing happens on Atkins,
same thing happens on all kinds of diet. The problem is people can lose weight for three to four
to six months, but time after time they lose mindfulness. And it's not subtle. People stop getting
on the scale. And you don't get on the scale for three weeks and you've gained back eight
pounds and then you get depressed and then you go for two months and you gain back another
ten pounds and you just -- and you say, oh, screw it.
And I've lived it, lots of other people lived it. And if mindfulness is the problem, guess what the
solution is? Well, and here's it's really helpful. It doesn't have to be a commitment to weight. It
might be just be a commitment to getting on the scale. And indeed this great physician at Brown
has done randomized tests showing that commitments to get on the scale, to keep track and to
actually start taking action if your weight gets out of bounds, can really help on this very, very
difficult idea of sustaining weight loss.
And this is another place where technology can help. This is the Withings Wi-Fi scale. And it's
just a wonderful technology. I bought one a few weeks ago and within 20 minutes out of the box
I had it synced to my Wi-Fi and it was pushing data forward to an iPhone app and to a special
Twitter account that I had set up just for this purpose.
And it's -- and in fact now if you go to ianweight on Twitter, this is another way that people
matter. I'm making it easy to hold myself up to ridicule if my weight gets out of line.
And the automaticity of this is important for sustaining mindfulness. Because one of the hardest
things that happens with weight loss is you'll get people out there that start journalling. They
keep their Weight Watchers points, so they write down everything they do, you'll have these
Twitter accounts that put down every calorie that people eat.
It's just not sustainable. Very, very few people can sustain an eating journal for a year. And you
even saw in an earlier slide I used to enter my daily weight into a Google doc for over a year.
And it's just a pain to do. And so the idea that now you can just stand on the scale and
technology takes care of the paperwork is really -- enhances the chance that you're going to
sustain this over a long time.
And, secondly, it makes it easier to be honest. We have this problem that now I'm working with
Withings and it's soon going to be partnered with stickK. And Withings can be your referee and
it can report a failure. And there's -- it's un-intermediated.
So finally I want to talk about framing matters. And here are a couple little experiments. This
first one was done at Columbia University. A coffee shop near this university, like many coffee
shops, would give you a free coffee after your tenth purchase. And at random they would
sometimes give people this card, and sometimes they would give people this loyalty card.
They are identical except this one is -- you get it after your 12th purchase, but they prestamp the
first two. All right? And framing maters. It often helps to give yourself the illusion of progress.
And the people who were given the card on the right were about 10 percent faster in getting to
their goal. All right? And a second thing that I want to do -- and here, let me -- I need a
volunteer for this. How about you, sir? Will you help me?
>>: Me?
>> Ian Ayres: Yeah. Okay. You don't have to stand up. You can just do that right here.
Okay. This is a real advertisement that was sent out to people to try to raise money for orphans
in Africa. It's translated. It was sent out in Korea. And the deal is this: Half the people at
random saw the upper element and they were told that we have raised $4,920 of a $10,000
campaign. And half the people at random were told that we still have $5,080 to go on a $10,000
campaign.
And so your question is: Which one of these two charitable solicitations was more effective, the
upper one, the to-date condition; or the bottom one, the to-go condition?
>>: I will say the top one.
>> Ian Ayres: The top one. And it turns out that in some ways I'm testing your own reaction to
this because it turns out there were two. They were each effective but for different types of
people. It turns out that the top one was more effective for people who had never yet given to
that charity before.
And when those people were given these two different solicitations at random, the people who
had never given, to be shown that some other people gave, helped them give money. You
probably haven't given to this Korean charity before, right?
But the people who had already given to the charity, they gave more if they saw the bottom one
in the upper one. So if you already have a level of commitment to the thing, focusing -- and this
might help you if -- your swimming laps. If you're not so committed to it, focus -- you should
count up from I've done five laps, I've done seven laps. But if you're more committed to it and
you want to get through it, count down: I have six to go, I have four to go, I have three to go.
Framing. This is another way that framing really matters.
Now, I've been talking about lots of way that incentives and commitment contracts work. I just
want to spend a little bit of time on how they don't work. This is a famous theme of literature,
maybe the most famous is the idea of Shylock and securing a pound of flesh. It also shows up in
Stephen King's wonderful short story Quitters, Incorporated.
[audio playing]
>> Ian Ayres: And Harry Potter doesn't miss it either. The unbreakable vow is one that if you
break it you automatically die. In all these cases, even people are the ones that secure severe
commitments from others.
And there are good reasons that we have concerns about overcommitment. Overcommitment,
they can be too dire, like pound of flesh contracts, they can be disruptive, as in the Israeli day
care example. Dan Areily has some experiments about that can be distracting. If you just have
five months of income at risk, you just got too nervous to pay attention or be creative. You can
be too ambitious. They can be too inflexible and you can have too many of them.
We want to be free in some sense. There's a reason why people go to all-inclusive resorts,
because sometimes we don't want to be -- have our decisions channeled. We want to have
unpriced decisions.
And just to end, I'll end with how I started the book. An MIT electrical engineering graduate
sent me this strange e-mail out of the blue a couple years ago where he said, you know: I just
wanted to thank you. I've gone for several weeks without sneezing and I want to thank you for
that. And he said -- and then he went on: Let me explain. When I was in fifth grade a teacher
told me that in the past people would artificially induce themselves to sneeze by putting tendrils
of tobacco into their nose. And I went home and I put a piece of plastic in my nose and I caused
myself to sneeze and I enjoyed it. And I started doing it over and over. And I became kind of
addicted to inducing myself to sneeze.
And then he tried to quit for the 20 years and couldn't bring himself to do it. And he was
e-mailing me as one of the cofounders of stickK to thank me because he had entered into a
commitment contract and had successfully -- he'd put money at risk and had a referee and he'd
successfully gone for more than a month without artificially inducing himself to sneeze. And he
said he just got on a run, it was the first time his lungs had been clear.
And when we think about this story, it's all too easy to say, well, that guy is weird, I'm not like
him. But in some ways, my claim to you is we're a lot more like him, not on the sneezing stuff,
but I -- I, for example, have an addiction to Minesweeper that I have to work against.
Many of us, if you really inspect your soul, there's more of this guy in all of us or many of us
than we might at first want to admit. And in fact maybe it's not -- we're not that different than
animals in this respect.
And what you just see there is a monkey who is artificially inducing itself to sneeze.
Thank you. I'd be happy to take some questions.
[applause]
>> Ian Ayres: Yes, sir.
>>: When you talk about the Israeli child care example, the first thing that came to my mind was
if it were my company what I would do is I would say I'm going to increase the price for
everybody of the day care and I'm going to keep track if you're late or on time or early. If you're
early, you get a kickback. And that would be kind of like a positive motivator. And you didn't
really talk much about using anything that to me sounded like a positive motivator. And I'm
wondering if there's a reason or if it's coincidental or if any thought ->> Ian Ayres: It's not coincidental and the book actually talks about carrots as well as sticks.
Often the best motivator is going to be carrots and sticks.
But let me say there's a lot more to say here. There is -- once people are -- if they're willing to
enter into an incentive device, sticks tend to be more effective than carrots. And it's because of
something called loss aversion. Losses loom large. People work harder to avoid losing ten
bucks than they work to try too gain ten bucks.
But -- and this is a tremendously important caveat, it's really hard to get people to participate
voluntarily in stickK contracts. And so, in fact, when you go to the workplace, if your employer
tries to foist a stickK contract on you, it will lead to a revolt. So often your wellness programs
will only be implemented through carrots and not through sticks. And so there's often attention
between getting people to participate and getting the terms that once they participate will be most
effective.
And the one way that actually I'm trying to push a little bit toward this is one of the more
powerful ways to combine -- it shouldn't be a choice of carrots or sticks, but one of the best ways
to combine carrots and sticks is to give you carrots to sign up, to pay Ian Ayres $282 if he will
then put money at risk in the later on.
And this especially helps, because we have this bias toward the present. So we say we lure the
carrot. I'll give you money right now, here's 200 bucks if you'll put in the future when you don't
really care as much about it, the possibility of losing money. And that's one of the ways to
combine this.
But carrots have an important role, especially to get us to participate. Yes, sir.
>>: Thinking about the story of the guy who wanted to go to search and sort of picked the
wrong referee to help him, on your site, have you looked at the differences between the contracts
that are on your honor versus the one individual [inaudible] ->> Ian Ayres: Yeah. Surprisingly there's not much of a difference in forfeiture rates. They're
both 75 to 80 percent. It's a slightly higher success rate with if you have a referee than if it's on
your honor.
And I should emphasize, though, from this that these success rates are reported success rates
where the failures come either from your failure to report, your failure to report success, or if it's
a refereed contract, the referee can also report your failure.
And so it's surprising somewhat that there wouldn't be a larger difference between -- well,
why on an on-your-honor contract, why would we have 20 percent failure rate? Because these
are people that just by lying to us can stop themselves from losing real money.
And there are a lot of people out there that aren't willing to lie. Or let me -- 20 percent of the
time they're not willing to lie. So there's not as much of a differential there. But, you know,
what is a big differential is as you add extra supporters, you're going to have a higher success
rate as you go from one -- if I hold constant, if I look at just the contracts that have money at
stake and that have referees, you're going to have a higher success rate as you go from one to
three to five supporters. So picking out five supporters, really helpful.
Yes.
>>: So you know here at Microsoft we have a lot of knowledge workers. The type of work
tends to be sometimes hard to measure or nondeterministic outcome, a lot of creativity. And I'm
kind of coming at this from -- well, relatively ignorant about all of this. I'm a brand-new
manager, so I'm still learning about these things. But I recently saw a talk from Dan Pink
[inaudible] so that probably gives you enough know there's my question. How does this apply?
>> Ian Ayres: Excellent. And I just put up a -- a Freakonomics blog post in answer to your
question on the New York Times this morning. So I'm well -- I've been thinking a lot about this.
And in this great TED talk, Daniel Pink talks about the difference between 21st century problems
and 20th century problems. And the 21st century problems are centrally about creativity. And
there is some good experimental evidence from Dan Ariely that incentives can disrupt creativity.
And so I full stop to the extent that the core thing that you're trying to motivate is creativity, this
is a caveat on how much you want to use carrots and sticks.
However, there are three things that I still want to add on. There are plenty of 20th century
problems that are still all around us. People are overweight, people smoke, there are a lot of -and indeed if you look at the dominant contracts that people enter into, they are not creativity
contracts. Even though we do get -- we've had people that enter into contracts to write folk
songs on stickK. And so some people use it for creativity.
The next thing that I think is important is there are a lot of tasks that are a mixture of the creative
and noncreative. And long before stickK existed, there was this lovable writing instructor, really
beloved writing instructor at Yale Law School named Rob Harrison, and he's the kind of guy that
ends every e-mail "love, Rob." He's -- and bizarrely, from this perspective, he has offered
students with deep procrastination, writer's block, the option of doing a kind of commitment
contract where for the last ten years he said: You're having trouble getting this paper in; fill out a
check to charity and I'll hold it for you, and if you don't get in the paper to Ayres on time, I'll just
mail it.
And so he's the referee. And, interestingly, the smart Yale law students, without my help, about
five years ago said it would be more effective if we use anti-charities than charities.
And in ten years Rob has never had to send a check. Now, writing is creative. But part of it is
creative, but part of it is just writing the damn paper. And so it's a tradeoff. There's the -- the
creativity part might not be the best way to come up with the -- it might not be the best way to
come up with a truly breakthrough innovation. But if you need to get a thousand lines of code,
there's -- part of that is creative and part of it is just putting in the hours.
And, by the way, there is this earlier slide about whether it is outcomes or behaviors or inputs.
And sometimes you want to have the commitment to be, yeah, I commit that I'm going to put 12
hours into this activity. And that kind of thing shouldn't be as distracting to you.
I even find that by making commitments on the noncreative parts of my life, and it kind of takes
them off my cognitive agenda -- it frees me up to be more creative on the other sides. So those
are the -- one last thing on this, because it is a very important question you asked, he published a
piece in London last year that was called Forget Carrots and Sticks, They Don't Always Work.
And that is not a good claim. One might as easily say forget chemotherapy, it doesn't always
work. And instead it behooves us to find out when it works and when it doesn't.
Definitely this is a tool that you want to sometimes keep in the tool bag, but sometimes it's a very
powerful way to change behavior.
Yes, sir.
>>: Along those lines, somebody outside of technology, do you think it would be applicable in a
tenant and landlord situation either way?
>> Ian Ayres: Yeah.
>>: As a tenant, you know, coming in and having something structured this way [inaudible] or
the landlord wanting to attract the type of person that can enforce this.
>> Ian Ayres: Yeah. Definitely. You know, and I -- I haven't literally thought of this before,
but it's a way that you could put up some bonds that were refereed by the tenants that, you know,
I will respond to plumbing problems within 48 hours and/or the tenants association will get to
referee or some money will be forfeited.
And, by the way, you can forfeit the money to the tenants, you can forfeit it to -- sometimes it's
helpful to forfeit it to a third party, either to one that both people like, but often to one that they -that the landlord might not like. So it could help induce landlord behavior, it could help induce
better tenant behavior in getting their -- getting their rent in on time or making sure they take out
the garbage, things that they're trying to do.
Any kinds of behaviors -- and these are, again, not ones that are deeply creative -- that are -would -- you might be able to -- putting some money at risk might be one of the ways to improve
the equilibrium.
Yes, sir.
>>: My questions around getting people to buy into this in the first place. I mean, how do you
get people motivated to get into it. Because I think once they're in the scheme, I think they'll do
a good job of responding to incentive. But just getting them to get there in the first place is the
hard part.
>> Ian Ayres: Yeah. So you're -- so, first, you're exactly right. Participation constraints, what
economists call this, and it is one of the -- it comes up over and over again in this book is how
can you get them into the kinds of devices that are going to work the best.
One of the ways that behavioral social scientists have reacted initially to stickK is they said, you
know, this is going to be such a problem, no one will use your site. Because in order to use it,
you have to have a willpower problem, and you have to be sophisticated enough to know you
have a willpower problem. And the number of people who -- and, by the way, they have to trust
that you're not just going to steal their money from them, little things like that.
And one of the interesting things about this James Herman auction is that, again, it helps respond
to that. The idea that you can get paid up front to enter into a contract, it kind of flips the
traditional social science thinking on its head. The people who don't think they -- oh, yeah, I'm
overweight, and a lot of -- and what I mean, you have to know you have a problem, well, yes, I
know I'm overweight now, but I don't think I'll lose it next year. So many people have that -naively think they're not going to have a willpower problem in the future.
But this kind of throws that on the head. If you said, okay, well, I will give you a hundred
dollars now to commit to doing something that's not going to be tough on you, you don't think
it's going to be tough, okay, I'll give you a hundred dollars for it.
And that is one of the ways to try to bring them in. But besides that approach, there are other
ways to -- that you can start mobilizing other parties.
Another kind of an idea is at the point -- there's a bit of this was Simon Usborne. You have them
at the point -- you catch somebody that you know or love and they have a drinking problem.
And we have binge drinkers that come here. Sometimes they come on their own. But
sometimes you come to me and you're apologetic because you're in my family and you've been
binge drinking for the third time and you swear up and down that you're going to quit.
And this is a kind of a sincerity filter, stickK.com, these commitments, they say, oh, really?
You're really going to change this time? Well, you're not going to resist entering into a
commitment contract, are you?
And so to catch people at the moment when their truer selves come out is one of the ways to
overcome. But you're exactly right. Getting them to participate is over and over again one of the
biggest difficulties.
>> Kim Ricketts: Maybe one more question. Or two.
>> Ian Ayres: Okay. You and then you. Okay.
>>: A quick question about impulsive spending and the inability to save or want to save and
then actually save. Do you find any particular incentives for [inaudible]?
>> Ian Ayres: Oh, yeah. This is -- I mean, and this is -- when it's finances on finance, it's really
simple. Okay. So that you just put if I don't -- if I don't save $150 this month, I lose $50. And
then what -- well, do -- what do you prefer doing? And most people then find it very easy to
save money. It's a -- a money on money is -- saving is one of the easy kills on this. Yes, sir.
>>: Yeah, I'm coming at it from your Staples example. We're working on incenting people to
use our products more and also in the world of privacy to encourage people to provide
information. And so what -- we're thinking about frameworks for the evaluation of the incentive
relative to the activity you're asking us to do. I'm sure it's very situational, but if you have
research that speaks to that ->> Ian Ayres: Yeah. And so one of the things that you want, if you are going on the carrot side,
which is an important thing to keep in mind, is you're going to tend to want to have -probabilistic lottery carrots tend to work better than nonprobabilistic carrots, is beyond the -- you
know, what are the nonsituational things to say here.
And the reason is that people tend to make another cognitive error. They put too much weight,
even if you tell them you have a one in a thousand chance of winning this item or this cash,
you -- they tend to -- they don't hear one in 1,000; they hear one in 200. And that overweighting
causes them to -- you get more of a bang from a lottery carrot than from a nonlottery carrot.
The other thing that tends to happen, and this is different, is that you tend to get more of a bang
from noncash carrots than from cash carrots. But they have to be carefully chosen and they have
to be the kind -- and these things are situational and evolving. And, you know, it was the flip -it was a flip camera three years ago -- yeah, it was the -- you know, the little recording camera
three years ago was a cute thing to give people, a lottery chance with that, and it moves -- it
moves quickly and you need to do some testing to find out what it is.
People will tell you that they want -- that they prefer money to nonmoney. But if you're
actually -- there have been great experiments that say -- that have randomly tried to incent people
to solve math problems and they -- for massages. Oh, by the way, massages are a pretty good
thing that work. Giving people a lottery chance of massages tends to work better.
And you want the kinds of things that give items that give people -- even if they win it by lottery,
give them a chance to brag about themselves. Hey, Joe, did you see I got -- I got a day at a spa
or I got to go on a trip or something like that.
Those are the -- and since you can vary the lottery amounts and as applied, something else you
want to -- and a final rule that I'll give you is you want a people -- when you have lotteries that
people can build up, you want them to always have a chance at it. And so that they -- if they're
building up easy points or Microsoft points, they can accumulate those and raise their chances.
So even if they don't have many points, they still could take a flyer at winning the car. That's
the -- and that -- and that will keep them more engaged than to say, oh, you have to get 4,000
points before you have a chance at the car. And I say I'm never going to get to 4,000, so this
doesn't interest me.
And I think that's it. Thank you so much.
[applause]