Your daughter is the best in many ways but we should probably cross out doing homework from that list! There are the days that you take the hours off from your work just to be there and push her to do her homework. But it does not really work. You even promise her that if she does her assignment regularly, you will all go to Paris in the summer, as excited as she gets, still it does not impact her lack of interest. Until one day, you tell her for every day that she finishes her assignments, you let her play on the iPad for an hour, boom!! She starts working on her homework and even tries to finish them sooner than later so that she can start playing on the iPad before she is too tired! Does she suddenly like doing her homework? No! But now, she knows that finishing her homework means playing on the iPad! Its pleasure is tangible and immediate. It is not a summer trip to Paris that might happen or not, it is not because of avoiding punishment, rather it is for an immediate incentive. Therefore, the joy of playing games on the iPad is now coupled with the assignments, making them more bearable or even joyful for her.
In 2004, roughly 71% of Americans were overweight or obese. In addition to the toll this takes on individuals’ wellbeing, the alarming statistics highlighted a looming public health crisis for policy-makers, as potential costs for obesity-related illnesses mounted. Seeking to apply lessons from behavioral science, Volpp and co-authors (2004)  designed a now-famous study to see if monetary incentives could help people lose weight.
In economics parlance, the term present-bias refers to our natural tendency to attribute greater value to immediate benefits over future ones. For example, we might indulge ourselves with a greasy cheeseburger, ignoring how doing so might affect how we’ll feel tomorrow (let alone our long-term heart health). Understanding this phenomenon, the authors wondered if this very same tendency could be exploited in the service of promoting healthy behaviors. Accordingly, this hallmark study investigates whether daily payments can help people combat their present bias, opting instead for behaviors that promote long-term wellbeing.
Specifically, the study aimed to answer the following question: can offering day-to-day monetary incentives help individuals lose weight?
To answer this question, fifty-seven individuals between the age of 30 and 70, all of whom were classified as medically obese, were recruited and randomly assigned to one of the following experimental groups:
Methodology: After random assignment, participants were part of either a control group (which received no monetary incentives) or one of the two financial incentive programs described above (lottery or deposit contract). In the lottery group, when the participants did not win, they were informed of how much they could have won. Knowing about their loss, the experimenters harnessed individuals’ tendency to avoid losses (i.e. loss aversion) in this group design.
In addition to the 16-week program, the researchers followed up with members of the three groups 7 months after it began (i.e. three months after finishing the program), in order to see the extent to which the target weight was sustained.
Results: After 16 weeks of the program, participants in both incentive groups lost roughly three times more weight than their counterparts in the control group.
However, participants in both incentive groups gained weight between the end of the program and the 7-month follow-up, showing that although the financial incentive resulted in significant weight loss during the program, participants did not succeed to maintain their weight 3 months later. That is, while the payments were able to help combat present bias while they were received, people reverted back to their prior habits when the incentives were removed. The results were as follows:
Legacy: While the results were mixed — in that the treatment only worked so long as payments were maintained — this study showed that financial incentives can help people overcome their present bias. Indeed, the study has since inspired other weight loss efforts such as Diet Rewards , the reality show The Biggest Loser , and a health company, Healthy Wage . Moreover, a host of follow up research has added to our understanding of how incentives can be used to overcome myopia and engender behavior change. For example, the results of a 2016 study by Patel and co-authors  showed how the form in which the incentive is delivered impacts its effectiveness. Therein, the authors attempted to proxy the effect of a monetary incentive by reducing participants’ premium charges for their healthcare plans in the following year, or a similar daily lottery entry — but found that none of the incentives work. Thus, as the authors note in their summary, both the size of the incentive and the means of delivering it, are critically important to these interventions. One possible reason for the failure of the lottery is that participants would not get informed about their potential loss if they did not participate in the lottery. Or, in other words, individuals’ loss aversion was not harnessed, demonstrating the importance of applying this principle in the context of weight loss.
Takeaway: This hallmark study makes use of several well-known behavioral phenomena. Firstly, immediate incentives — even if they are small — can have significant effects on an individual’s behavior. This was evidenced by the effectiveness of daily rewards. The other lesson is that the experience of past rewards motivates future behavior, and people are particularly attracted to small probabilities of big rewards, all of which were harnessed in the lottery group. Finally, the lottery treatments played on people’s loss aversion by showing participants “what they could have won” had they met their daily goals. This was also the basis of the deposit contract group.
The main takeaway from this study is the need to understand how much immediate considerations drive behavior. In designing policy, we must harness, rather than fight against, these natural behavioral tendencies.