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Study Notes

Commitment Contracts and Behavioural Choice (Behavioural Economics)

Level:
AS, A-Level
Board:
AQA, Edexcel, OCR, IB

Last updated 21 Mar 2021

There is often a divide between intention and action especially for people with limited resolve and those vulnerable to temptation! The more public our position, the less willing we are to change it and we feel strongly about activities where we have made a personal commitment. Therefore, commitment contracts can reinforce decisions to adopt healthful behaviours such as getting your children immunised or saving enough.

Commitment contracts impose a penalty if people do not reach a goal – invoking loss aversion.

Loss aversion means that people feel financial losses more acutely than they would feel the financial gains of a similar size

Conditional cash transfers (CCTs) have become popular in many poorer countries - whereby cash welfare payments are made conditional for example on mothers bringing their children to immunisation centres to complete a course of treatment.

Examples:

  • Committing yourself to a diet using an online app
  • Commitment to joining a local savings scheme /credit union
  • Commitment signals to a partner using an expensive gift

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