The Role of Uncertainty in Commitment Device Take-Up

Study Context

This project seeks to understand the interaction between risk/uncertainty and the demand for commitment contracts. Research on this connection is critical to improving our understanding of why people make the decision to take-up commitment. Through theory and a lab experiment, this work will test the common assumption that sophisticated present-bias is the (main) driver of take-up. Additionally, this work will shed light on how to better market beneficial commitment contracts, in order to boost their take-up.

Study Design

The study involves lab-based real-effort tasks with a panel design in order to estimate individual-level present-bias parameters. Population will be based on Berkeley undergraduate students recruited through Berkeley’s Xlab and everyone will be given the same treatment. Outcome of interest is commitment contract take-up under varying levels of payoffs and risk. The study team will use these to test their theoretical predictors and estimate a distribution of present-bias parameters.

Results and Policy Lessons

The theoretical model showcases the inherent tradeoff between flexibility and commitment in the presence of uncertainty. Specifically, the study team derives sharp bounds on the amount of risk above which no demand for commitment should be observed. Theoretically, the link between risk and commitment demand can be leveraged to point-estimate the perceived present-bias parameter of the model. This work will shed light on how to better market beneficial commitment contracts, in order to boost their take-up and improve peoples’ (average) welfare.