Tuesday, January 25th, 2011

The Price of commitment

People use gym membership fees as commitment devices, on the assumption that paying for the gym every month will provide an effective incentive to work out to avoid wasting money. The tactic rarely works, however, as is evident at gyms around the country come February, when New Year’s resolutions to lose weight start wearing thin.

A solution may be on the way. A couple of Harvard graduates are working to improve the commitment device by giving it a twist: they have launched a plan in which customers get a free gym membership if they agree to work out at least four times a week and pay a $25 penalty each week that they fail to follow the schedule. This would impose an immediate cost on slacking.

Maybe this will convince people to work out more. But it probably can’t survive as a business. Gyms’ most profitable customers are couch potatoes who pay but never work out. Under this scheme, if they were to start exercising in earnest gyms would stand to lose real money.

Thanks to Richard Thaler at the Nudge blog for the pointer.

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