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Make A Commitment—A Commentary by Ian Ayres ’86 and Barry Nalebuff

The following commentary was posted on Forbes.com on August 30, 2010.

Make A Commitment
By Ian Ayres ’86 and Barry Nalebuff

Doctors, trainers, nutritionists and financial advisors can engage their clients on StickK, set customized commitments for them and referee their success.

One of Oscar Wilde's characters said, "I can resist everything except temptation." Alas, many of us have this problem. In 2006 we published a column suggesting a new business to help people stick to their goals. The idea, which sprang from the fertile mind of Yale economist Dean Karlan, was for a commitment store where people could set a goal and then choose the appropriate reward for success or punishment for failure.

Lots of people, not least our editor at FORBES, have suggested that we put the ideas in our columns into practice. This time we took up the challenge. Shortly after the column hit the stands, Ian and Dean, together with Yale School of Management student Jordan Goldberg, went to work to create StickK.com, a site where users put their money where their mouths are.

Set your goal and StickK will nudge you with e-mail reminders and tell your friends whether or not you succeeded. You can choose an "on your honor" contract or you can designate a referee to verify whether you reached your goal. When tough love is required, StickK lets you back up your commitment with hard cash. You're less likely to backslide on your promise if failure means forfeiting money.

Our column suggested that the company keep all the forfeited money. We had envisioned a weight-loss bond that would pay out $1.50 for every dollar you put at risk as long as the company could keep the dollar if you failed. We figured that even with a 50% success rate, the company would clear a nice profit. But betting against the customer didn't send the right message. Also, if the success rate topped two out of three, the business would lose money.

When Dean, Jordan and Ian turned the idea into a business, they skipped the carrots and opted for the pure stick of putting money at risk. And instead of having the company take all the forfeited money, they let users decide who gets the bulk of it. Some people opt to give the money to charity; many figure they'll have more resolve if the forfeited money goes to an anticharity, an organization that turns their stomachs. The presidential libraries of George W. Bush and William J. Clinton are two popular choices.

The new revenue model is software as a service. Doctors, dentists, personal trainers, nutritionists, dietitians, personal financial advisors can engage their clients on StickK, set customized commitments for them and referee their success. Organizations can employ StickK to help their customers, employees, or members to achieve goals relevant to the organization. For example, the American Cancer Society is using the platform to help people make health and wellness commitments. Staples used it to get customers to make small-business-related goals.

There's another way to structure the StickK penalty payment that lets users profit from change. In researching the book Carrots and Sticks: Unlock the Power of Incentives to Get Things Done (due in September from Bantam Books), Ian had a long talk with James Hurman, a young ad exec from Auckland, New Zealand. On Feb. 22, 2008 Hurman made commitment history when he posted a video on YouTube offering to sell his smoking habit to the highest bidder. More precisely, he sold the right to be the recipient of NZ$1,000 (U.S. $730) for every cigarette that he smoked at any time following the auction's close. The high bid for this pathbreaking auction was just NZ$300 (from a colleague at work who would know firsthand if there was a lot of backsliding), but the threat of losing a lot of money has kept Hurman smoke free to this day. He donated the NZ$300 to the Cancer Society of New Zealand.

Ian is selling a promise, too. On Oct. 8 an Ebay auction will close on the right to collect $500 in any week over the following year in which the currently 183-pound Ian tops 185 pounds. Barry has promised to pay $100 to the National Center for Public Policy Research for every quarter in the next year in which forbes.com/whynot doesn't have at least one new post from us or a clever business suggestion from a reader.

Our kibitzing colleagues doubted there would be enough demand to sustain a commitment store. There is. Since the site went live in January 2008 StickK's 75,000 registered users have put at risk $4.5 million on a dizzying array of goals. It was probably a wise business choice not to offer a cash bonus for success. Even without any carrots, the incentives work remarkably well. Seven of every ten StickK users who put money at risk keep their commitments.

Ian Ayres and Barry Nalebuff are professors at Yale Law School and Yale School of Management. Ayres' latest book, Super Crunchers, was published in August. Visit their homepage at forbes.com/whynot.