Self‐nudging contracts and the positive effects of autonomy—Analyzing the prospect of behavioral self‐management

Abstract

Nudging interventions typically presume some asymmetry of sophistication and power between the choice architect and the nudged. But the nudged need not be relegated to a passive role. We present evidence that individuals have a capacity to counter their biases, and even to use them to their advantage. This capacity for behavioral self‐management (“BSM”) can allow them to act as the choice architects of their future‐self. In our study, we provide participants with the autonomy to choose among a variety of loss‐ and gain‐framed contracts that govern the terms under which they perform a real effort task. The results show that subjects strategically harness their own loss aversion to counter their present bias and significantly improve their performance. The loss‐framed contracts give individuals a tool they can use to self‐nudge. This possibility of self‐nudging should widen our perspective on biases. Biases can cause cognitive error and dampen motivation, but they can also be a valuable tool for individual decision making. And giving subjects the autonomy to choose their favored contract adds to the effectiveness of their BSM strategy. We show that subjects' experience self‐determination utility separate from performance benefits driven by a better adjustment of work tasks to subjects' production functions. To demonstrate the policy relevance of our results, we expand on an application of BSM strategies to retirement savings plans, which we suggest may lift participation and savings rates at no additional cost.

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