It’s a pre-commitment strategy in that workers are committed to a particular career decision ahead of time, but it’s not a binding pre-commitment. They can choose to leave the plan when they wish. So, what happens when a business or a company changes with some degree of success to an opt out approach? How is this pre-commitment working for an entrepreneur?
Success comes from asking the right question
The history of one large chemical company is typical that company offered a very generous dollar for dollar match up to 6% of pay, but still only about 70% of employees signed up for the retirement plan. When that company began automatically enrolling new employees into the program nearly everyone continued to participate, almost no one opted out.
And let me tell you the most amazing effect that same company automatically enrolled all of its current employees who weren’t participating. Again these are people who could have signed up but just didn’t. More than 95% of those people now stayed in the program and started building savings for retirement.
One simple change in how a retirement plan was presented to employees, moving from an opt in to an opt out approach, led to a dramatic increase in participation. This sort of story is pretty typical, it’s now been documented in a number of different business ventures and companies under a wide range of conditions and with various entrepreneurs.
And employers or career professionals don’t have to go all the way to adopt an approach, just requiring employees to make an active decision, they have to indicate whether they want to sign up or not, can lead to much better participation since people must take action to join the plan. So, it’s difficult to make a retirement plan a success by using this approach.
The trials of an old career traveler
As this example illustrates pre-commitment is a very powerful approach to improving decision-making, it works and it works well especially under the right circumstances. A pre-commitment is a decision now to limit one’s possible decisions in the future. Pre-commitment works in large part because we know that we don’t always make good decisions. We think about ourselves in the future, perhaps facing some new temptation, and we don’t trust that future self to make a good decision, so we find our future selves hands to prevent mistakes.
The classic example pre-commitment involves a literal binding. In Homer’s Odyssey the protagonist Odysseus had to sail his ship past the sirens, there were half human half bird creatures who lured sailors to their deaths through a mesmerizing song. The sorceress Circe took Odysseus aside and advised him to stop up the ears of his crewmen with wax enter bind himself with strong ropes to the ships mast so the crew couldn’t hear the siren song and so that he couldn’t act when he heard it.
Odysseus was tempted by the siren song which promised him what he most desired knowledge, but he couldn’t give into the temptation, he was physically unable to leave a ship and thus his pre-commitment during a moment of cautious reflection saved him during a later moment of temptation. Odysseus’s pre-commitment worked because it was credible and costly. There was no way he could escape the bindings when he was later tempted.
I emphasize this because pre-commitment often doesn’t work when it’s not credible and when it doesn’t carry any cost. If you’re like most Americans you’ve made New Year’s resolutions before, you might’ve resolved to lose weight volunteer more in your community or to take up a new and time-consuming hobby and if you’re like most Americans you didn’t keep all of your resolutions.
Just resolving to do something doesn’t mean success and it can actually backfire. Just making a resolution about your goal can make you less likely to take action to reach that goal.