Defining incentives

Hat tip to Mark Thoma link to Economistmom for this link to a WaPO column in the Human Behavior section by Shankar Vedantam.

Psychologists have long been interested in what happens when people’s internal drives are replaced by external motivations. A host of experiments have shown that when threats and rewards enter the picture, they tend to destroy the inner drives. Paychecks and pink slips might be powerful reasons to get out of bed each day, but they turn out to be surprisingly ineffective — and even counterproductive — in getting people to perform at their best.

More than three decades ago, Edward Deci, a social and personality psychologist at the University of Rochester, found the first experimental evidence of a phenomenon with wide relevance to the way most Americans conduct their personal, professional and social lives.

Deci tracked a bunch of college students who were solving puzzles for fun. He divided them into two groups. One group was allowed to keep solving puzzles as before. People in the other were offered a small financial reward for each puzzle they solved.

The psychologist later evaluated the volunteers: He found that people given a financial incentive were now less interested in solving puzzles on their own time. Although these people had earlier been just as eager as those in the other group, offering an external incentive seemed to kill their internal drive.

“They thought of it as something they really enjoy and like to do, but now they do it in order to get money, and they think of the task as an instrument to get money and not an activity that has value in its own right,” Deci said. “Human beings both want to — and, in a deeper way, need to — feel a sense of being autonomous. When someone else begins to seduce you into behaving with an offer of a reward, it takes away your sense of being autonomous. Now you are doing it for someone else.”

Rewards and punishments guide the lives of most Americans. Young children are given stars for putting away their toys, kids earn a few bucks for mowing the lawn, and teens are told they will be grounded if they get in trouble. For adults, stock options, raises, demotions and firings become different kinds of carrots and sticks.

Beliefs about the utility of rewards and punishments in motivating human behavior are deeply ingrained, and most people don’t know that more than 100 research studies have shown that motivating people in this manner can have the unintentional effect of undermining their internal drives.

The striking thing about the research, said Roland Benabou, an economist at the Woodrow Wilson School of Public and International Affairs at Princeton University, is that it is so starkly at odds with bedrock economic principles.

“A central tenet of economics is that individuals respond to incentives,” Benabou noted in one research study. “For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine intrinsic motivation.”

Many parts of psychology as practiced have abandoned Skinerian models of incentives, so perhaps it is time for economics to do so as well. M&Ms never really worked the way they were expected to anyway.

We have also previously touched on scarcity and found it is not what many expect it to be as well, and came up with some descriptors beyond physical scarcity, to scarcity of capital/profit ratio, to building surplus as soon as stored value begins (the old school heating system image, guaranteed to make an impression on teachers), and finally a caution:

Teaching kids that what exists simply exists without asking them to consider why, or providing answers based in marginalist theory, its subjectivisms and imaginary equilibriums, is essentially no more than indoctrination meant to absolve rather than progress.

(quote by juan in comments)

How is that handled with undergrads and voters? (Or even 12th graders).

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