Thursday, July 29, 2010

An Economic Slimming Algorithm

I think the key principle that underlies economics is that "individual incentives matter". Add some self interest (envy, greed), and look at the implications. I wouldn't think this way if I didn't think it worked.

I just lost 18 pounds via Stickk.com, a website that encourages weight loss and really any goal. It was founded by an economist based on the idea that incentives matter. I have wanted to lose some extra middle aged blubber for a while, but at the margin I had no real motivation (putting socks in the hamper would help my sex life more than buff abs). I knew I needed some outside force, so I created a contract at Stickk such that I had to lose 2lbs every week for 9 weeks or I would pay $50 for each violation to a charity that supported things I did not like (the anti-charity option).

The goal was cumulative, so basically my target weight goals were 231 lbs, 229, 227 etc. I gave them my credit card, and I had to report my weekly weight, and get a referee of my choosing to validate my progress. I chose a colleague at work, who would look at me on a scale I brought in. One could cheat the system, but when you involve another person, it's less likely. As an economist, I liked the idea: just give the incentive, make it strong, and let me figure how to get there. The algorithm is thus greatly simplified compared to Weight Watcher plans that suggest counting calories.

I only wish the website didn't try to do so much, classic feature creep. It seems to want to be a Facebook, allowing me to write commitment contracts on anything all while keeping up to date on my progress with pictures, etc.

10 comments:

Drewfus said...

"individual incentives matter"

Why do individuals respond to incentives? Because it's in their self interest? Isn't self interested behavior the positive response to incentives?

I wouldn't think this way if I didn't think it worked.

Worked... in a circle?

Eric Falkenstein said...

Greed and incentives are related, but not identical, because one's incentive could be to elevate the King, Dear Leader, or tradition. If self interest is greed or envy, individual incentives act in self interest, but individual incentives do not imply greed is self interest.

Anonymous said...

"middle aged blubber"?... from all the pix on your site, I would have thought: 230 lbs of rock-hard muscle...

Anonymous said...

Now if I were your wife I might discourage you - the buff abs might be used for a nefarious purpose.

J said...

Devise a mechanism that works on the principle of "envy" instead of "greed".

(May be the crowded waiting room of my slimming shaman/doctor operates like that. He demands freshly printed cash, so greed is also involved.)

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Anonymous said...

Eric, you are absolutely right to be skeptical. I am a career bank regulator and can tell you firsthand how regulators share the blame for not taking action to stem the financial crisis much sooner. Supervisors simply dropped the ball when provided ample warnings of the crisis. Managers simply took the path of least resistance and did not want to subject themselves to being second-guessed by those higher up on the totem pole. Much the same way that compliance and Risk Officers were over-run at the large banks by other officers afraid that bad news would "screw the pooch" by eliminating hefty bonuses.

Currently, there is only very limited protection for whistleblowers within the government to protect federal employees. In fact, nothing at all to protect federal employees who must act on disclosures as part of their assigned duties within the government. The history of financial meltdowns repeatedly demonstrates that an abdication of federal regulatory duties was a major factor allowing indefensible industry practices to accumulate and fester until there was a disaster.

Existing corporate whistleblower rights secure a channel for the flow of evidence when laws and reforms are violated. But this leads to continued bureaucratic cover-ups, since there is no protection for those on the front lines of using the evidence to enforce the law.

After the 2006 presidential election, a Democracy Corps survey of swing voters found that stronger rights for government whistleblowers was their second highest priority at 79%, second only to ending illegal government spending.

This is because whistleblowers are the single most effective resource that exists against fraud. After the False Claims Act enfranchised whistleblowers, annual Justice Dept recoveries of civil fraud increased from $25 million in the best years, to an average of nearly one billion dollars annually. A Price Waterhouse global service of organizations found that whistleblower disclosures led to detection of more fraud than auditors, compliance and law enforcement safeguards combined.

We have found the same thing at our bank regulatory agency: it is tips from whistleblowers where nearly every major finding has come from regarding malfeasance and laws being violated at banks. It is very seldom ever disclosed by bank examiners themselves. Examiners, however, are able to follow-up on tips during examinations. Conveniently, senior officials of regualtory agencies never want the public to know this.

Anonymous said...

Eric, you are absolutely right to be skeptical. I am a career bank regulator and can tell you firsthand how regulators share the blame for not taking action to stem the financial crisis much sooner. Supervisors simply dropped the ball when provided ample warnings of the crisis. Managers simply took the path of least resistance and did not want to subject themselves to being second-guessed by those higher up on the totem pole. Much the same way that compliance and Risk Officers were over-run at the large banks by other officers afraid that bad news would "screw the pooch" by eliminating hefty bonuses.

Currently, there is only very limited protection for whistleblowers within the government to protect federal employees. In fact, nothing at all to protect federal employees who must act on disclosures as part of their assigned duties within the government. The history of financial meltdowns repeatedly demonstrates that an abdication of federal regulatory duties was a major factor allowing indefensible industry practices to accumulate and fester until there was a disaster.

Existing corporate whistleblower rights secure a channel for the flow of evidence when laws and reforms are violated. But this leads to continued bureaucratic cover-ups, since there is no protection for those on the front lines of using the evidence to enforce the law.

After the 2006 presidential election, a Democracy Corps survey of swing voters found that stronger rights for government whistleblowers was their second highest priority at 79%, second only to ending illegal government spending.

This is because whistleblowers are the single most effective resource that exists against fraud. After the False Claims Act enfranchised whistleblowers, annual Justice Dept recoveries of civil fraud increased from $25 million in the best years, to an average of nearly one billion dollars annually. A Price Waterhouse global service of organizations found that whistleblower disclosures led to detection of more fraud than auditors, compliance and law enforcement safeguards combined.

We have found the same thing at our bank regulatory agency: it is tips from whistleblowers where nearly every major finding has come from regarding malfeasance and laws being violated at banks. It is very seldom ever disclosed by bank examiners themselves. Examiners, however, are able to follow-up on tips during examinations. Conveniently, senior officials of regualtory agencies never want the public to know this.