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For the concept in cryptography, see commitment scheme.

For the campaign to reduce self-harm by gamblers, see Andrew Wilkie.

Precommitment is a strategy in which a party to a conflict uses a commitment device to strengthen its position, by cutting off some of its options to make its threats more credible. Precommitment improves the credibility of a threat either by imposing significant penalties on the threatening party for not following through, or, by making it impossible to not respond.

Overview

When players make a strategic precommitment they limit their own future options. This may not seem like a good idea at a first glance, however, precommitment might be beneficial if, by doing so, we can alter other players behaviour once they know that we will not be able to use some of our available actions. Precommitment as a strategy was discussed in detail by Thomas Schelling. It was important in 20th-century deterrence theory, as a threat must be credible to have deterrent power.

Background

Precommitment as a strategy, particularly in warfare, is not a new concept. However, perhaps the most famous contributor to precommitment theory was Thomas Schelling. Some of his most important contributions include the notion of the threat that leaves something to chance; the importance of bargaining to a focal point, or a "Schelling Point" as it came to be known; and the concept of tying one's hands in order to alter the bargaining situation. The threat that leaves something to chance, or a 'probabilistic threat', is one way to ensure that a threat is credible without necessarily carrying it out immediately, and the applications of his work were particularly important during Cold War escalation. Schelling referred to this threat in times of tension as bringing the interaction "to the brink of war", and he was able to show how committing oneself to an action beforehand can be beneficial in the bargaining process. Actors can, in fact, be better off by limiting their choices in advance.

Methods

Strategic moves are designed to alter the beliefs and actions of others in a direction favourable to to the player making the strategic move. However, it is important to note that while threats and promises are strategic, warnings and assurances are not. Warnings and assurances are simply opening moves that inform the other players what the player giving the warning will do when it is their turn to move. Yet when that players turn arises, there is no temptation to renege. Hence warnings and assurances merely play an informational role; they do not change the other players' beliefs about the game that is being played, and so they do not affect the other players behaviour. The objective of issuing either a warning or an assurance is simply persuasion, but as it doesn't require a commitment, credibility is not an issue. Threats and promises, however, are strategic moves; and thus have consequences for the strategies of the other players. The objective of issuing a promise or a threat is to influence the behaviour of the other players. In sequential games the first mover often has the advantage, an unconditional move, however, the second mover can gain first-mover advantage by precommitting to a response rule. A response rule is a conditional move, or a given reaction following a specific move made by another player; i.e. if you do x, then I will/will not do y.

Before discussing why threats and promises are strategic moves, we should first address why warnings and assurances are not. Consider, while the rationalisable options available to players are readily apparent and interpretable, are players' assertions about their future actions believable? Michael Alvard and David Nolin note that "In contrast to mutualistic contexts, in competitive situations where people's preferences are opposed, socially transmitted information is suspect because there is no motivation for individuals to transmit the truth." Indeed, Vincent Crawford insists that the coordinated talk of self-interested antagonists is nothing more than cheap talk. That is, merely mindless chatter, which should not affect the behavioural strategies of players.

Threats

A threat, in terms of the precommitment definition first proposed by Schelling, is a response rule which punishes the other players should they fail to cooperate. A response rule may be a compellent threat which induces a corresponding action (i.e. ransom), or a deterrent threat that deters an undesirable action (i.e. military deterrence). What is important is that both the player issuing the threat and the other affected players must suffer some sort of negative consequence should the threat need to be carried out, otherwise precommitment is unnecessary. Thus, there is an incentive to renege.

Promises

In contrast to a 'threat', a promise, in terms of the precommitment definition, is a response rule which rewards others who cooperate with the player issuing the promise. Much like a threat, this response rule may be compellent, in that it induces a desired action from the other players i.e. "if you put your shoes on, we can go to the park later." Alternatively, a promise may also be a deterrent - with the objective of avoiding an undesirable action on the part of the other players, such as; "if you don't eat the chocolate cake now, we can have cake and ice-cream later." In both cases above, there is some sort of negative penalty to the player issuing the promise should they not follow though after the other players cooperate. For example, if a player makes a compellent promise of going to the park later if shoes are put on now, and then reneges on this promise, their reputation is tarnished, and the other players may not believe them should they make a similar promise in the future. However, given that the player issuing the promise must pay some sort of cost in order to fulfil it, there is again the incentive to renege.

Compellence vs. Deterrence

Compellence

Compellence aims to persuade the opponent to change their behaviour, such that they act in a manner desirable to the player issuing the threat or promise. The player makes a demand of action, initiates their own, and then continues doing it until the opponent ceases. It is possible to distinguish between three forms of compellance; the player persuades his opponent (i) to stop short of their goal; (ii) to undo the undesirable action, such as withdrawing from battle, or exiting the industry; or (iii) to change their policy by changing government. Compellence is active: it seeks to change the status quo. Also, like offence, it takes the initiative and engages the opponent until the latter relents.

Deterrence

Conversely, deterrence aims to persuade the opponent not to initiate an action. The player makes their demand, explains the consequences of a certain action to their opponent, and then waits. Success of a strategy of deterrence is then measured by whether or not the undesirable action occurs; if the opponent crosses the line that has been drawn, the player issuing the threat takes punitive action. Deterrence is conservative: it seeks to protect the status quo. It is also, like defence, essentially a waiting game: the opponent has to move before a reaction is triggered. However, in a military setting, any party employing a Strategy of Deterrence faces the problem that retaliating against an attack may ultimately result in significant damage to their own side. If this damage is significant enough, then the opponent may take the view that such retaliation would be irrational, and therefore, that the threat lacks credibility. If the opponent believes that a threat lacks credibility, it ceases to be an effective deterrent.

Visibility of Success

In a theoretical setting, compellence and deterrence are strategically identical; and it is difficult to assess whether either strategy has been successful or not, given that the desired outcome may have been achieved through some other means - not necessarily because the strategy was successful. However, in real world practical applications, success of compellence is easier to see than deterrence. A successful strategy of compellence entails the reversal or halt of ongoing behaviour. This halt of action may occur for some other reason, but it is hard to avoid the impression of doing it under duress. Meanwhile, a successful strategy of deterrence entails the continued absence of an undesirable behaviour, one which has not yet occurred. For example, in a prison setting, success of the penal system is measured by how empty jail cells are. It is difficult to know whether the absence of any such antisocial behaviour that would land an individual in prison is because of the threat of being jailed, or for some other reason.

Implementing a Strategy of Precommitment

To achieve the desired result, the commitment should be visible, understandable, and credible - and to be credible, the precommitment strategy should be irreversible. The following are the three theoretical measures a player can take when implementing a strategy of precommitment.

• Reduce payoffs from those strategies which may tempt you, such that they are no longer a best response.
• Remove strategies from those which may tempt you in the future. That is, cut off your available options.
• Transform a simultaneous move game into a sequential game.

Practical real world applications, in addition to the above, may include:

• The tying of hands through use of a third party (in a theoretical context, also a method of strategy removal).
• Players becoming irrational by eliminating strategic control.

a) Reduce Payoffs

In the first scenario, there are a number of options available depending on the circumstances, i.e. firms can use sunk costs or enter contracts which are costly if reneged upon. For example, investment in branding and advertising on the part of an incumbent firm is a form of sunk cost. After the money has been invested it is irrecoverable; no matter whether the investment turns out to be profitable. The objective for the incumbent firm is to alter the beliefs of any potential entrant, such that they see their cost of entry as including a comparable effort at branding and advertising etc. Such a strategy requires a degree of precommitment; the incumbent firm is committing itself to a course of action by way of an investment, and in doing so, signals to the other parties that it has eliminated other possibilities. If undertaking this action - entering and investing a comparable amount - is costly to other firms, this acts as a deterrent signal.

Consider a scenario in which two firms are considering market entry. The market capitalisation potential is $20,000, and the cost of entering the market is $14,000.

It is in the best interest of each firm to not enter if they believe that the other firm will do so.

However, what if Firm 1 was to adopt a strategy of deterrence by altering their own payoffs? They could do so by making an initial investment toward the cost of entry, in the form of a sunk cost. If Firm 1 was to make an initial investment of $5,000, this alters their best response.

Now it is the dominant strategy of Firm 1 to enter the market, regardless of what the other firm does. Knowing this, Firm 2 will not enter the market. Hence the cost of deterrence for Firm 1 was $5,000.

b) Remove Strategies

A second option is for the player making the threat to eliminate options from their own strategy set. By cutting off avenues of potential deviation, the player ensures that their threat is a credible one. This is often referred to as burning bridges, and one of the most famous examples of this is perhaps that of the Chinese strategist, Sun Tzu; who recommended in The Art of War that should you want your army to win, you should burn your ships - thus cutting off your own retreat. Indeed, in 1066 William the Conqueror's invading army did exactly that, and thus made an unconditional commitment to fight rather than retreat. Hernán Cortés also followed the same strategy in his conquest of Mexico, when he had his men scuttle the ships in order to eliminate any means of desertion. In a more modern sense, strategy removal can be done through the use of delegation. Firms, for example, when negotiating contracts can send an agent with power of attorney to “sign as is” or “walk away”. This agent only has two options available as strategies, whereas if the owner of the firm were to participate in negotiations directly, it may be tempting to participate in long drawn out squabbles over details; given that he likely has many more options available to him.

c) Use of a Third-Party

A method commonly employed in international relations is the use of a third party to tie your hands. This can be done through the use of alliances, or by subscription to a higher authority, such as the UN. The use of third-parties is useful, as eliminating one’s own payoffs in a credible, irreversible way can be difficult. Third-parties can be useful as “enforcers”. Much like strategy removal, agents may also be used as third parties; consider the role of an escrow agent in facilitating the transaction between two other parties.

d) Elimination of Strategic Control

One further option for demonstrating an unquestionably credible commitment to a given strategy, is to leave the outcome beyond your control entirely. In this case, an automatic response is essential - one such example being the Soviet Dead Hand policy. In the context of the Cold War, fail-deadly retaliation systems such as the Soviet Dead Hand made a response to a sudden attack automatic, regardless of whether or not anyone was left alive to make decisions. However, this strategic advantage does not come without a cost; there may be an accident or a break down in communications, with potentially devastating consequences.

Further Applications

Time Inconsistency

Schelling later applied similar ideas of precommitment as a method of resolving individuals' internal struggles, seeking to develop what he called "strategic egonomics, consciously coping with one's own behaviour, especially one's conscious behavior." That is, precommitment strategies as a means of solving the problem that individuals appear to simultaneously want to eat dessert, and to lose weight, to run two miles per day, and yet they hate exercise. "What I have in mind is an act or decision that a person takes decisively at some particular point in time, about which the person's preferences differ from what they were earlier, when the prospect was contemplated but the decision was still in the future. [] If the person could make the final decision about that action at the earlier time, precluding a later change in mind, he would make a different choice from what he knows will be his choice on that later occasion."

Modern behavioural economics has since extended these ideas, and ideas of precommitment are now used in everything from Alcoholic recovery programs, to laws dealing with gambling addictions. A primary contributor to these developments is the work of Richard Thaler, who won the Nobel Prize for his contributions to behavioural economics. Thaler demonstrated that we possess more awareness, and better judgement, in regard to experiences which are closer to the present than to those which are far off in the future. For example, spending $100 today may seem to deliver greater utility than saving that same $100 for use in the future. Thaler thus devised a “planner-doer” model, wherein the planner-self thinks about long term objectives, and the “doing-self” cares only about the here and now. Due to this lack of self control, people may be more willing to adhere to various precommitment strategies, such as non-smoking plans, AA, residential drug abuse centres etc.

Example: Gambling

Many gamblers find it hard to control the money spent on gambling. Yet, features of gaming machines often mean that genuinely informed choice are often not present. Strategies of precommitment allow gamblers to determine limits on their playing, and provide a mechanism for improving informed consent. One such example is self-exclusion, which allows gamblers to prevent themselves playing at specified venues. This idea of precommitment strategies to constrain ones own future available options is not one particular to gambling, indeed, in Homer’s Odyssey Ulysses had his men bind him to the mast of his ship to avoid the tempting calls of the Sirens; and instructed them to not untie him no matter how much he should later beg. A Ulysses Contract or Ulysses pact, often referred to as an advanced directive in the literature on end-of-life care, is a self-exclusion agreement made between a legal entity and an individual when they are in a legally competent state of mind, and when they are presumed to have requisite capacity to make informed decisions about their future. In terms of gambling, it is a contract between an individual and a gambling house or casino, that prevents an individual from reentry in the future should their resolve waver.

References

• Connolly T, Arkes HR, Hammond KR. Judgment and decision making: an interdisciplinary reader.

Further reading

• Arslan, Ruben. "Evolution of cooperation: Emotion as a commitment device," Evolutionary Theory across the Life Sciences, 2000-2011.
• Beggs, Jodi. "Be Careful With Those Commitment Devices…," June 17, 2009.
• Brocas et al., Isabelle, Juan D. Carrillo, and Mathias Dewatripont. "Commitment Devices under Self-Control Problems: An Overview,"
• Ross and Dumouchel, Don and Paul. "Emotions as Strategic Signals," Rationality and Society August 2004 vol. 16 no. 3 251-286.
• Straker, Dave. "Commitment Devices," Changing Minds, 2002-2011.