Saturday, March 22nd, 2008...9:58 am

Put Your Money Where Your Girth Is

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Last week, Morning Edition aired an interesting story about how dieters who bet on their own weight loss were more successful, on average, than those who didn’t. This apparently also worked for quitting other vices too, like smoking. The idea is that people are so adverse to losing money that they will do whatever it takes to make sure that that doesn’t happen.

This is a really interesting idea. The story even talks about an odds maker in New York City who will allow you to bet on your own weight loss (in case you can’t find a friend or coworker to keep you honest…). An economics professor even started a website that let’s people bet against an “anti-charity” that they will lose weight. This guy is auctioning his smoking habit to the highest bidder.

It seems that as much as people like to get money, they HATE losing it. I wish I could find a reference, but I recently heard about a studied that showed that people would rather be the 1,000th customer at the movie theater and win $1,000 than be the 1,000,001 customer and win $1,500 — right behind the guy that won $1,000,000. [Editor’s note: I don’t actually know of any movie theater’s giving away $1,000,000, but if I hear of any, you’ll be the first to know…] Also, apparently the return has to be better than 2-1 for most people to bet on something: people will risk $5 for a $10 possible reward, but not for a $7.50 reward, even if the odds are better than 5-7.5.

So now we know that good health, self-esteem, good looks, good breath, etc. are not sufficient motivators, but the prospect of actually losing money is.

These stories got me to wondering: Could this approach also work for Personal Finance? For many of us, poor spending habits can be as habit forming and eventually detrimental to our wellbeing as many of the other vices listed above. So why not bet $500 on an anti-charity that you’ll save $500 this month? Would this be as effective as for weight loss? Do the odds need to be 1-1, 2-1, 1-2? [Editor’s note: Apparently the link to the Freakonimics blog above that links to StickK has already thought of this and offers “contracts” for Personal Finance goals…]

What do you think? Are you motivated by the risk of losing money? I can think of some cases in my life where laziness definitely cost me money. For example: basements all over the country are full of exercise equipment that cost good money, but sits idle. Isn’t that lost money? Why isn’t the fact that you paid for these products as motivating as the idea that you might lose the same amount for the same reason? Isn’t Social Psychology fascinating?

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