Business World

Commitment contracts

A famous Norwegian proverb says: “Tomorrow I shall begin a better life. I think . . .” Probably everyone can somehow relate to this proverb – some of us want to quit smoking but fail, some of us want to exercise more but fail, some of us want to read more but fail. There are so many ways of how we can change our behaviour to lead a better and happier life but somehow we cannot make this change happen. Especially in times of lockdowns and social distancing, we rethink our habits and realize that we want to change something in our lives but the way to this new life can be very hard. The cigarettes taste too good, the couch is too comfortable and watching Netflix instead of reading a book is more relaxing after a long day of work or university. Behavioural economics shows a solution to this dilemma: commitment contracts.

Commitment contracts are contracts with yourself. Many scholars have investigated the effects of commitment contracts and concluded that they significantly increase the probability of their study participants to stick to their initial plans (e.g. Beshears et al., 2011; Halpern et al., 2012). The following article gives you some tips on how you can create your own commitment contract to realize personal growth and to achieve your goals. 

Commitment contracts work best if the contract is written down on paper and not only in your mind, as it becomes more tangible this way. Also, try to be as concrete as possible in order to avoid loopholes – just as you would do it with a real legal contract. Examples for this contract could be: “I will exercise at least three times each week for at least 45 minutes each time, excluding warm-up, cool-down and stretching. During the workout, I need to make sure to try as hard as I can in order to get out the maximum of my body.” Furthermore, making your contract public by sharing it with your family and friends makes you less willing to break it. How much information you share with them – whether it is only that you set up a commitment contract or whether you reveal them all the actions you need to do in order to meet the terms of the contract is up to you. However, the more information you share with them, the greater the probability that you stick to your goals. Another aspect that can be added to the commitment contract are penalties: The theory of loss aversion – shown, inter alia, in an experiment of Daniel Kahneman et al. (1991) – states that people avoid the risk of losses, because the pain of incurring a loss is greater than the pleasure of an equal‐sized gain. Hence, penalties added to your contract work better than including rewards. Examples for penalties could be: “For each time I do not exercise as agreed on in the contract, I need to pay a fine of 10€.” The fine should depend on the personal (financial) situation – it has to be high enough in order to deter the bad behaviour. If you realize that you find yourself in the situation that you regularly have to pay the fine, it could be a sign that you should set up a new commitment contract and increase the fine that needs to be paid if the terms of the contract are not respected. Giné et al.’s study (2010) shows that commitment to quit smoking for six months grew by 30% – which is significantly more than with other tools such as nicotine pouches – if participants failed a final urine test that detects nicotine and hence needed to pay six months-worth of smoking money as a penalty. Thus, you could use this finding to make your willingness to stick to your plan higher by including penalties in your commitment contract. What you do in the end with the fines you paid when you did not respect the contract is up to you and there are no creativity boundaries. You only need to ensure that you personally do not benefit from how the fine is used. You could give the fine to family or friends, pay the drinks when you meet with friends in a bar (once the lockdown is over), donate the money or partner up with another person that also sets up his/her own commitment contract and you exchange the fines you both needed to pay. The specification of how the fines are finally spent should be part of your commitment contract as well.  

These were some tips of how to set up your own commitment contract. When you apply all of the points mentioned above, the probability of sticking to your goals and achieving personal growth increases dramatically. Give it a try and use the time of lockdowns and social distancing to adapt habits that will make you lead a happier life – I am sure you can do it. 


Beshears, J., Choi, J. J., Laibson, D., Madrian, B. C., & Sakong, J. (2011). Self control and liquidity: How to design a commitment contract.  

Giné, X., Karlan, D., & Zinman, J. (2010). Put your money where your butt is: a commitment contract for smoking cessation. American Economic Journal: Applied Economics, 2(4), 213-235.  

Halpern, S. D., Asch, D. A., & Volpp, K. G. (2012). Commitment contracts as a way to health. Bmj, 344.  

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. Journal of Economic perspectives, 5(1), 193-206.  

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