An unusual auction began late yesterday on eBay.? I’m selling my “right to regain weight.”? Why would anyone in their right mind be willing to pay me cash to buy this right?? What does this even mean?
It’s simple.? The winner of the auction wins the rights to receive any forfeitures on my stickK weight maintenance contracts over the course of the next year.? As I say in the eBay item description:
Following the auction’s close (and as soon as I receive payment from the auction winner), I will designate the winner as the recipient of any forfeiture payments made on my?www.stickK.com maintenance contracts for the next 52 weeks.
Any week during this 52-week period where
(i)????????????????? I fail to report to stickK my progress on the contract;
(ii)??????????????? I report that my weight is above 185; or
(iii)?????????????? My referee, Barry Nalebuff (Yale game-theorist and Ayres coauthor), reports that my weight is above 185 lbs
the auction winner will receive $500.
So, I’m selling the right to receive any and all stickK forfeitures during the next year.? I’m auctioning my stickK contracts.? Since I’m putting $500 at risk each week, the auction winner will receive somewhere between $0 and $26,000.
Further, I’ll send a free copy of my new book?Carrots and Sticks: Unlock the Power of Incentives to Get Things Done to the commenter who posts (before Oct. 1) the best prediction of what the winning bid will end up being.? The auction ends on October 8.
I’m predicting that I will not be paid very much.? Even though I’ve had a hard time staying below 200 pounds in the past (and even include?a picture of myself in one of my heavier phases), I, like Subway’s Jared, have all kinds of incentive to keep my weight in check.? I’m probably one of the few eBay sellers who warns bidders not to bid too much:
If I fail in each and every week, the auction winner could receive as much as $26,000.??But beware: my weight on August 4, 2010 is about 180 lbs.? I intend to make sure that my weight stays below 185 lbs throughout the 52 weeks – so it is possible, even probable, that the auction winner will not receive any forfeiture money.??It would be foolhardy to bid very much on this item.
The idea for this auction comes from?James Hurman, a New Zealand advertising executive, who in 2008 successfully sold his smoking addiction.? You can learn more about James and how you can sell your weaknesses in?chapter 3 of my book.
One of the themes of Carrots and Sticks is that “participation matters.”? A commitment contract is only going to help you if you can bring yourself to sign it.? Many people are reluctant to sign up for the risk of losing money.? The “Hurman” auction responds directly to this concern by compensating you in advance for taking this risk.?? Behavioralists tend to think that the only people who would sign up for a stickK contract are those people who have a willpower problem AND are sophisticated enough to know they have a problem.? The less sophisticated will be overly optimistic about their future resolve.? These “naifs” won’t take the trouble to sign up for a stickK contract because they don’t think they’ll need it.? But the “Hurman” auction flips this concern on its head.? The unsophisticated will be compensated with cash today for taking on a chance of forfeiture that they overoptimistically believe is very small.? The “naifs” should be the first in line for Hurman auction commitments.
Michael Abramowicz and I have written a long (56 pages!) academic article,?Compensating Commitments: The Law and Economics of Commitment Bonds That Compensate for the Possibility of Forfeiture, teasing out the intricacies of compensated commitments.? For example, it turns out that there is a family of incentive-equivalent compensating commitments.? Imagine a smoker who wishes to create a $10,000 incentive to quit smoking (and the $10k incentive will create a 40% success rate).? This can be implemented with “ex ante” compensation where the smoker promises to pay a $10,000 forfeiture if he smokes and an ex ante auction offers to pay him $6,000 today for a chance to receive the forfeiture.? This is just a version of the Hurman auction.? Notice that the auction is also a kind of prediction market that tells you your probability of success.
But a similar result could be achieved with what Abramowicz and I call “Ex post” or “Wager” auction implementations.? These alternative implementations vary the amount that must be paid in compensation by the auction winner ex post if the smoker succeeds.? For example, a $6,000 contingent ex post compensation is an actuarially fair exchange for the chance to earn $4,000 if the smoker fails and creates a $10,000 incentive to quit smoking.? Or alternatively, the smoker might pay a bookie a $4,000 wager and win $10,000 if he kicks the habit.
More generally, by varying “K” in the last row of this table, it is possible to devise an infinite number of auctions that in neo-classical models would produce incentive-equivalent and actuarially fair results.? The multiplicity of incentive-equivalent options is important because when more behaviorally realistic features are added to the model, the different auctions have very different advantages and disadvantages.
When it comes to my own auction, the willingness to bid should turn in part on whether people can trust whether I’m actually keeping the weight off.? You can keep track of how I’m doing on my maintenance contract?here.? On September 27, I weighed 182 pounds.