Tie yourself to the mast

In the Greek myth, Odysseus had his crew tie him to the ship’s mast so he could not follow the Sirens’ song. If you know your future self will give in to temptation, you can close off the escape route in advance. Nava Ashraf, Dean Karlan and Wesley Yin tested this idea with money, and named their paper after the myth.

What we know

The study was a randomized controlled trial with customers of a bank in the Philippines.

• The commitment account: money could not be withdrawn until a date or an amount the customer chose. It did not pay more interest than a regular account.
• Who was offered it: 710 randomly chosen customers.
• The comparison: customers who were offered nothing, or who only heard a message about why saving matters.

Of those offered the account, 28.4% opened one. A year later, savings balances in the whole offered group were higher than in the comparison groups. Because the researchers compared everyone who was offered the account, not just those who opened it, the result is not simply a sign that keen savers signed up.

Some people chose to make their own money harder to reach, with no extra interest. That tells us some people do not fully trust their in-the-moment selves.

How to read it

• The design supports a causal reading. Because the groups were randomly assigned, we can say that offering the account led to higher balances.
• Only some people wanted it. More than seven in ten did not open the account. It fits some people and not others.
• Locking money has a cost. You cannot reach it in an emergency. Locking up money you need to live on can cause real trouble.
• It is one bank in the Philippines. We have not found a study testing the same design in Japan. And it measured account balances, not income or total wealth.

A US study found that people with a stronger pull toward the present, called present bias, tended to carry more revolving credit card debt (D10). That study is correlational, but it is one more reason not to leave every decision to the self of the moment.

A small step today

You do not need a special bank product to tie yourself to the mast.

• Write one line for your savings: what it is for, by when, and how much. A clear goal makes you pause before taking money out.
• Keep savings apart from the account and card you use every day. Putting it somewhere a little harder to reach is a mild lock in itself.
• When you feel like withdrawing, leave it for one night. It is the same idea as the app habit “Waited a night before buying”.
• Keep money you might need soon, like living costs, somewhere you can reach.

Lock only what belongs to the goal you set. Once you have decided on one goal today and moved money toward it, log “Paid myself first” in the app.

Sources

• [D8] Ashraf, Karlan & Yin (2006) Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines. Quarterly Journal of Economics.
• [D10] Meier & Sprenger (2010) Present-Biased Preferences and Credit Card Borrowing. American Economic Journal: Applied Economics.