“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.”
Parents of daycare kids, Chicago school teachers, and sumo wrestlers. What do they have in common? If you guessed that they all are cheaters, then your right. In this chapter Levitt and Dubner discuss the relationship between the parents that come late to pick their kids up from daycare, the teachers of Chicago who cheat to give their kids better test scores, and the lack of competition in sumo tournaments. Each of these groups have things that push them to do what they do, and this is known as incentives. When the parents were fined $3.00 for coming late, the fine wasn’t a big enough incentive to get them to do the right thing. Instead the fine almost justified them for being late. Teachers in a Chicago study apparently cheated and changed the answers on kid’s tests to the correct answers so they met the state standards, even though they were too lazy to actually teach the kids. And finally, sumo wrestlers only need to win 8 out of 7 matches to rank in a tournament so those that have already won the needed amount, might throw a match since they have less of an incentive.
Like in these situations when there isn’t an incentive pushing them to do the right thing, as humans, we tend to do the easier things, which isn’t always the best. One key to incentives though is finding that balance where people do the right thing, but without making the incentive so extreme that it causes a wrong itself. For example, the $3.00 fine wasn’t enough, but what if the fine was $300.00. (Extreme, yes, I know.) A parent who maybe had to go back to his New York City office because he forget his important brief-case, showed up a couple of minutes later, would be pretty upset to pay that fine. So then they would tell the other daycare parents, and all together the daycare would lose business. But, if that fine was increased to maybe $10.00 per child then a parent probably would push to get their on time, and the daycare service would be happy and still in business. Balance is key to incentives, and incentives is key to understanding economics.