Freakonomics Incentives Quotes

An incentive is a bullet, a key: an often tiny object with astonishing power to change a situation

In the United States especially, politics and economics don’t mix well. Politicians have all sorts of reasons to pass all sorts of laws that, as well-meaning as they may be, fail to account for the way real people respond to real-world incentives.

There are three basic flavours of incentive: economic, social and moral.

Are people innately altruistic?" is the wrong kind of question to ask. People are people, and they respond to incentives. They can nearly always be manipulated--for good or ill--if only you find the right levers.

There are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will include all three varieties. Think about the anti-smoking campaign of recent years. The addition of a $3-per-pack “sin tax” is a strong economic incentive against buying cigarettes. The banning of cigarettes in restaurants and bars is a powerful social incentive. And when the U.S. government asserts that terrorists raise money by selling black-market cigarettes, that acts as a rather jarring moral incentive.

People aren’t “good” or “bad.” People are people, and they respond to incentives. They can nearly always be manipulated—for good or ill—if only you find the right levers.

Incentives are the cornerstone of modern life. And understanding them — or, often, ferreting them out — is the key to solving just about any riddle, from violent crime to sports cheating to online dating.

People who buy annuities, it turns out, live longer than people who don’t, and not because the people who buy annuities are healthier to start with. The evidence suggests that an annuity’s steady payout provides a little extra incentive to keep chugging along.

But as incentives go, commissions are tricky. First of all, a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back roughly half of her take to the agency. Which means that only 1.5 percent of the purchase price goes directly into your agent’s pocket. So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. But the agent’s additional share—her personal 1.5 percent of the extra $10,000—is a mere $150. If you earn $9,400 while she earns only $150, maybe your incentives aren’t aligned after all.

There are three basic flavors of incentive: economic, social, and moral.

When the solution to a given problem doesn’t lay right before our eyes, it is easy to assume that no solution exists. But history has shown again and again that such assumptions are wrong. This is not to say the world is perfect. Nor that all progress is always good. Even widespread societal gains inevitably produce losses for some people. That’s why the economist Joseph Schumpeter referred to capitalism as “creative destruction.” But humankind has a great capacity for finding technological solutions to seemingly intractable problems, and this will likely be the case for global warming. It isn’t that the problem isn’t potentially large. It’s just that human ingenuity—when given proper incentives—is bound to be larger. Even more encouraging, technological fixes are often far simpler, and therefore cheaper, than the doomsayers could have imagined. Indeed, in the final chapter of this book we’ll meet a band of renegade engineers who have developed not one but three global-warming fixes, any of which could be bought for less than the annual sales tally of all the Thoroughbred horses at Keeneland auction house in Kentucky.

For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it.

In the 1970s, researchers conducted a study that pitted a moral incentive against an economic incentive. In this case, they wanted to learn about the motivation behind blood donations. Their discovery: when people are given a small stipend for donating blood rather than simply being praised for their altruism, they tend to donate less blood. The stipend turned a noble act of charity into a painful way to make a few dollars, and it wasn’t worth it. What if the blood donors had been offered an incentive of $50, or $500, or $5,000? Surely the number of donors would have changed dramatically. But something else would have changed dramatically as well, for every incentive has its dark side. If a pint of blood were suddenly worth $5,000, you can be sure that plenty of people would take note. They might literally steal blood at knifepoint. They might pass off pig blood as their own. They might circumvent donation limits by using fake IDs. Whatever the incentive, whatever the situation, dishonest people will try to gain an advantage by whatever means necessary. Or, as W. C. Fields once said: a thing worth having is a thing worth cheating for.

Who cheats? Well, just about anyone, if the stakes are right. You might say to yourself, I don’t cheat, regardless of the stakes. And then you might remember the time you cheated on, say, a board game. Last week. Or the golf ball you nudged out of its bad lie. Or the time you really wanted a bagel in the office break room but couldn’t come up with the dollar you were supposed to drop in the coffee can. And then took the bagel anyway. And told yourself you’d pay double the next time. And didn’t. For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it. Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor. Cheating is a primordial economic act: getting more for less. So it isn’t just the boldface names — inside-trading CEOs and pill-popping ballplayers and perkabusing politicians — who cheat. It is the waitress who pockets her tips instead of pooling them. It is the Wal-Mart payroll manager who goes into the computer and shaves his employees’ hours to make his own performance look better. It is the third grader who, worried about not making it to the fourth grade, copies test answers from the kid sitting next to him. Some cheating leaves barely a shadow of evidence. In other cases, the evidence is massive. Consider what happened one spring evening at midnight in 1987: seven million American children suddenly disappeared. The worst kidnapping wave in history? Hardly. It was the night of April 15, and the Internal Revenue Service had just changed a rule. Instead of merely listing the name of each dependent child, tax filers were now required to provide a Social Security number. Suddenly, seven million children — children who had existed only as phantom exemptions on the previous year’s 1040 forms — vanished, representing about one in ten of all dependent children in the United States.

If you were to assume that many experts use their information to your detriment, you’d be right. Experts depend on the fact that you don’t have the information they do. Or that you are so befuddled by the complexity of their operation that you wouldn’t know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn’t dare challenge them. If your doctor suggests that you have angioplasty — even though some current research suggests that angioplasty often does little to prevent heart attacks — you aren’t likely to think that the doctor is using his informational advantage to make a few thousand dollars for himself or his buddy. But as David Hillis, an interventional cardiologist at the University of Texas Southwestern Medical Center in Dallas, explained to the New York Times, a doctor may have the same economic incentives as a car salesman or a funeral director or a mutual fund manager: “If you’re an invasive cardiologist and Joe Smith, the local internist, is sending you patients, and if you tell them they don’t need the procedure, pretty soon Joe Smith doesn’t send patients anymore.” Armed with information, experts can exert a gigantic, if unspoken, leverage: fear. Fear that your children will find you dead on the bathroom floor of a heart attack if you do not have angioplasty surgery. Fear that a cheap casket will expose your grandmother to a terrible underground fate. Fear that a $25,000 car will crumple like a toy in an accident, whereas a $50,000 car will wrap your loved ones in a cocoon of impregnable steel.

People respond to incentives, although not necessarily in ways that are predictor manifest. Therefore, one of the most powerful laws in the universe is the law of unintended consequences.” 〰️SuperFreakonomics〰️

people respond to incentives—

As with most bad behaviors, drunk driving could probably be wiped out entirely if a strong-enough incentive were instituted—random roadblocks, for instance, where drunk drivers are executed on the spot—but our society probably doesn’t have the appetite for that.

Whatever the incentive, whatever the situation,dishonest people will try to gain an advantage by whatever means necessary.

There are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will include all three varieties.

In the United States especially, politics and economics don’t mix well. Politicians have all sorts of reasons to pass all sorts of laws that, as well-meaning as they may be, fail to account for the way real people respond to real-world incentives.

An incentive is a bullet, a lever, a key: an often tiny object with astonishing power to change a situation.

And there are few incentives more powerful than the fear of random violence - which, in essence, is why terrorism is so effective.

The problem with crack dealing is the same as in every other glamour profession: a lot of people are competing for a very few prizes. Earning big money in the crack gang wasn’t much more likely than the Wisconsin farm girl becoming a movie star or the high-school quarterback playing in the NFL. But criminals, like everyone else, respond to incentives. So if the prize is big enough, they will form a line down the block just hoping for a chance. On the south side of Chicago, people wanting to sell crack vastly outnumbered the available street corners.

Whatever the incentive, whatever the situation, dishonest people will try to gain an advantage by whatever means necessary. Or,

Some people would argue that we don’t do a very good job. But taking the long view, that is clearly not true. Consider the historical trend in homicide (not including wars), which is both the most reliably measured crime and the best barometer of a society’s overall crime rate. These statistics, compiled by the criminologist Manuel Eisner, track the historical homicide levels in five European regions. The steep decline of these numbers over the centuries suggests that, for one of the gravest human concerns—getting murdered—the incentives that we collectively cook up are working better and better.

Humans respond to incentives.

Politicians have all sorts of reasons to pass all sorts of laws that, as well-meaning as they may be, fail to account for the way real people respond to real-world incentives.

Incentives are the cornerstone of modern life. And understanding them—or, often, ferreting them out—is the key to solving just about any riddle, from violent crime to sports cheating to online dating.

For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it. Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor. Cheating is a primordial economic act: getting more for less.

What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it.

People aren't" good"or "bad". People are people, and they respond to incentives. They can nearly always be manipulated - for good or ill-if only you find the right levers.

An incentive is simply a means of urging people to do more of a good thing and less of a bad thing.

There are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will include all three varieties. Think about the anti-smoking campaign of recent years. The addition of a $3-per-pack “sin tax” is a strong economic incentive

Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing.

Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing. Economists love incentives. They love to dream them up and enact them, study them and tinker with them. The typical economist believes the world has not yet invented a problem that he cannot fix if given a free hand to design the proper incentive scheme. His solution may not always be pretty—it may involve coercion or exorbitant penalties or the violation of civil liberties—but the original problem, rest assured, will be fixed.