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Pre-commitment as a business and public policy tool

Does that anger dissipate instantaneously as if turning off the light switch? No! Anger lasts. It takes time to dissipate and all the while you’re fearful of what that angry person might do next. But, how can this be of any use for a business person or an entrepreneur? Is success the only thing that matters? Is career that important?

We back down when facing irrational behavior in business negotiations

There’s a great cartoon by the New Yorker artist Frank Modell called The extortionist. In it two pedestrians approach a street vendor selling pencils. The vendor stares off in the distance with an angry look on his face. He holds pencils in his left hand in a whip in his right hand and he wears a sign that reads irrational.

When we receive clear signals that someone else is committed to an irrational course of action even if it would be in their self-interest it shapes our actions, we back down in negotiations, we propose a more fair business in the ultimatum game and yes, we buy pencils that we don’t want.

Pre-commitment can be a powerful tool for making good decisions and has been recently applied by range of institutions both governmental and nongovernmental in hopes of shaping real-world decisions. In business this can be applied in any type of negotiation but this is obviously useful for any entrepreneur.

Using pre-commitment as a business and public policy tool

A striking example has come in the realm of organ donation. Making one’s vital organs available to others in the event of death can save the lives or improve the quality of life of several other people. Organ donation has extraordinary social benefits, but in many countries too few people registered to be donors.

In the United States donor rates have risen steadily as people become more aware of organ donation and assigning up becomes increasingly convenient, but participation still remains lower than it should. Only recently has the proportion of eligible donors risen above 40% in many of our peer countries has similar or lower rates, but in some countries such as France, Hungary and Portugal nearly 100% of all adults are registered organ donors.

Is this because their citizens are more altruistic than Americans? No! It’s because those systems use an opt out approach to organ donation – everyone is assumed to be a donor unless they expressly indicate they wish to opt out of the donation program, but almost no one does. So these programs have no success whatsoever.

A simple difference in policy from opting in to opting out of donation dramatically increases the number of eligible donors. This seems like a relatively non-controversial use of pre-commitment and of article of behavioral economic methods more generally. Thousands of additional lives are saved yearly in these countries, there’s a clear benefit to their societies, most people report approving of organ donation and back.

The ethical issue of some potential enormous societal benefit

Within the United States the number of people who support organ donation has historically been much larger than the number of eligible donors so the pre-commitment approach pushes them toward making a decision they prefer anyway and those people who don’t wish to become organ donors can still decline participation if they choose.

But even this case raises ethical issues. Let’s think about someone who is really against organ donation who doesn’t wish to participate, but because they are susceptible to all the same biases as the rest of us they don’t take any action to change the default. They end of being an organ donor, in a sense against their wishes because of their own inertia. Now there are obvious counter arguments.

There’s still an enormous societal benefit from increasing the pool of organ donors and even this hypothetical person still could have opted out if they just muster the energy. So, that’s hardly the most compelling case against an opt out plan. I do want to emphasize however that even the non-binding pre-commitment of an opt out program involves ethical trade-offs. So choosing a business and policy making tool might prove difficult.