Alongside prostitution, gambling is one of those moral issues almost guaranteed to evoke visceral responses. It cuts to the core of the eternal socialist/libertarian debate – do we allow, discourage, or outlaw an activity with such obvious negative consequences for individuals and families?
In some cases, however, gambling might not be as bad as it’s cracked up to be. I’ve written before about using betting markets as prediction tools, something that I think will continue to grow in the future. The success of such attempts hinges on the power of monetary gain as a mechanism for yielding individuals’ best efforts. Recently I came across another initiative using the same underlying incentive idea, but with a different purpose: betting on your own weight loss.
Here is one diet casino site, although the simplicity of the idea makes me think that there are probably at least a handful floating around the web. The arrangement is quite simple: set your weight loss target, choose your bet, and provide some self-info. Then the company will tell you how much you stand to win, and check up on your progress at regular intervals (with a mechanism to prevent cheating).
The theory behind this is straight out of behavioural economics – betting is an excellent commitment device. Humans use these devices all the time to bridge the gap between long-term payoffs and short-term pain. Dieting, studying for tests, or being nicer to idiot co-workers all yield dividends sometime in the nebulous future, whereas the associated suffering happens now. The temptation, therefore, is to allow ourselves to cheat. Commitment agreements impose some sort of penalty for doing so (e.g. forfeit your stake in the weight loss betting scenario), to counter the short-term temptation. There is a good paper reviewing commitment devices here.
If it helps people lose weight, it must be a good thing, right? Well, weight loss is certainly a noble goal, and socially useful (fill in your favourite alarming statistic about obesity here). There’s more to it than that, however – some of my thoughts on the idea:
- Returning to the casino analogy, the odds must be stacked in favour of the company. Although the site I mentioned early claim that they make money from “corporate and government clients who are interested in creative solutions to weight loss”, they still want to make a profit (on average) from each client. Thus those questions you are asked at the beginning (which include the strategy you are planning to use, your reason for wanting to lose weight, your gender and your height) will give the company’s actuaries a pretty good idea of how likely you are to succeed, and therefore how large the prize you are offered should be. Apparently in a normal casino the house edge ranges from 0.5% to 20%+, but since people have the dual goals of fiscal gain and weight loss in this scenario, I would be surprised if this company doesn’t skim even more off the actuarially fair payoff.
- This flies in the face of standard microeconomic theory regarding risk aversion. Weight loss is an uncertain outcome, so you may end up disappointed or happy. Far from wanting to compound this by then betting on their desired outcome, risk averse consumers should in fact want to take out insurance against the possibility of them not achieving their goal. Any such insurance market would suffer from huge moral hazard problems, though, which is probably why (to the best of my knowledge) no such one exists…
- Anecdotal evidence suggest that programs with one big weight loss goal and associated payoff (e.g. ‘The Biggest Loser’ TV show) work quite well to induce people to hit that target, but that the improvement is difficult to sustain – i.e. individuals often return to their previous weight. My guess is a crowding-out effect – the extrinsic motivation reduces the individual’s need to develop the intrinsic motivation that would have helped them continue the good habits they began while working towards their goal. I’m guessing that these weight loss bets will suffer from the same problem.
- Further to the first point above, there’s a bit of an incentive misalignment operating. Individuals are signing up with a company that promises to help them with their weight loss goal (even going to far as promoting the services of their ‘Chief Fun Officer’ in doing so). The company only makes money, however, when their clients fail – something of a problem there.
If anyone has tried such a program as this or knows someone who has, I’d be fascinated to hear about your experience – tell us about it in the comments section below.