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November 06, 2006

Weight Loss Bonds

posted by MR WAVETHEORY at 11/06/2006 11:35:00 AM
Ian Ayres and Barry Nalebuff, two professors at Yale School of Management, write a fascinating article abou Weight Loss Bonds. It works like this:

Imagine a Commitment Store that offered a financial incentive to lose weight. You promise to lose a pound a week for the next 20 weeks and then keep the 20 pounds off for the remainder of the year. You back up the promise with a $1,000 weight-loss bond. Weigh-ins are biweekly. Every time you meet your goal, you get back $60. Over the course of the year you could earn back $1,560. Of course, each time you miss, that costs you $60.

Here's a diet system that literally pays you to lose the weight. If you miss your goal weight one week, you still have an incentive to get back on track to collect the next payout. If $60 a weigh-in isn't enough to get your attention, then buy two or more bonds.

The 56% interest rate might seem high, but the fact is that more than 95% of dieters fail to keep their weight off for a year. Even if half the dieters succeed under this new regime, the store can still turn a healthy profit. Putting aside the interest it could earn on deposited funds (and the overhead costs), it would be taking in $2,000 from a pair of dieters and paying out $1,560 to one of them.

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