A major tenet of behavioural economics is non standard preferences . As the term suggests, non standard preferences mean something which is not accepted as “normal” or something which violates “rationality” in economics. Formally, non standard preferences refer to elements that form a part of the utility function which neoclassical models do not recognise. These are social preferences , time preferences and risk preferences.

 

Among these, time preference leads to extremely interesting applications and  creates demand for such products whose demand should not have arisen according to neoclassical economics as it is “irrational” . Before exploring its applications, we need to see what exactly is meant by time preferences.

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Time preference means that we are inconsistent in our preferences which are spread out over a certain period of time as opposed to neoclassical economists who proclaim that if we prefer 10 utils now to 15 utils next week, we also must prefer 10 utils in 25 weeks to 15 utils in 26 weeks.  This proclamation was put to test in the following way wherein 36 subjects were given two options-

1. take 1000 now

2.  2000 after two months

It was found that 23 people chose A and 13 chose B

 

Again two options were given to the same subjects-

      A) 1000 after 2 months

      B) 2000 after 4 months

 

Now, 8 chose A and 26 chose B. This is clearly a violation of the theory predicted by neoclassical economists.

The experiment clearly showed that we are dynamically inconsistent ,ie, we discount the future at a  non constant rate .This is to say that we are “present biased” or do hyperbolic discounting rather than exponential discounting (discounting future at a constant rate). For us “now” is more powerful.

 

This problem of time inconsistency eventually becomes a problem of self control. Individuals when faced with fraught choices ,ie, choices whose costs and benefits are separated over time face a challenge of self control .

 

Acknowledging the universal presence of this bias in human beings wherein we weigh “now” over “future”, interesting products have been developed. According to neo classical economics there should have been no demand for such products as human beings are “rational agents”. The very fact that demand exists for such products proves that human beings are not so rational!

 

To overcome the lack of self control numerous strategies have developed. One of them is the pre commitment strategy which is the principle behind the products discussed below.

 

First of them is The Kitchen Safe which is a time lock container and a powerful tool to build good habits. Keep something inside the box and set the timer. Once the timer is set and the button is pressed, the locker will remain locked until the timer reaches 0. It was originally developed to help people control their temptations for sugary food products like cookies, doughnuts etc but now is being widely used to control the temptation to use one’s smart phones every now and then. There is possibly no breaking in or cheating to “respond to that one last text”. The pre commitment strategy is seen to work here as the users commit themselves to not use or eat the locked in item for a certain period of time.

 

The next one is the Stickk.com. It is an app which  employs the pre commitment strategy too for your everyday goals like going to the gym, doing your homework, consuming less sugar , saving for retirement etc. The gap between setting one's goals and actually following them is filled in by this app. It asks users to sign commitment contracts by defining the parameters, acknowledge what it shall take to accomplish their goal in terms of a referee who shall verify the report or losing money if the subject fails to keep up or your supporters who keep cheering him as he goes along . There is also an option to involve family and friends by sending them an email describing the subjects progress. The psychological principles of loss aversion and accountability to drive behaviour change helps make this application a success.

 

Along with the two described products there are other products too like syrup of ipecac, x3watch.com which are based on similar strategies and have considerable demand in the market.

Such products seem bizarre but are extremely useful and help human beings overcome their weaknesses and vulnerabilities since  humans are definitely not the “rational” agents they think they are.

 

Explore for yourself the two products discussed above-

https://www.stickk.com/ and https://www.thekitchensafe.com/ and marvel at how far we have come ,interpreting and reinterpreting our economic, social and psychological foundations and how there still is a long way to go.