Incentives Matter
What we learned in class
I fell in love with economics because it helped me understand human behavior. I was a chemical engineering major for three years before I took my first econ class. My life changed forever that semester.
The concept of rationality helps me understand that we all have different preferences and taking on actions would require the evaluation of our own personal costs and benefits. It makes it hard to judge others, because each person is making the decision that is best for them.
I also fell in love with economics because rationality also means that with the right incentive design you can get people to change their behaviors. All that you need is help them change the equation to the following
or
We need to tip the scale so that the positives outweigh the negatives, benefits outweigh the costs. Simple!
Designing incentives is not an easy job. However, governments, businesses, parents….etc try to get you to change your behavior all the time.
Types of Incentives
Steven Levitt, in Freakonomics, explains that incentives can be
Financial
Social
Moral
our behaviors can be influenced by any of these three types of incentives mechanisms. You can learn a lot about yourself by asking yourself
1- why did you take action? or why did you NOT take action?
2- Were there any incentives influencing your behavior?
Economics is a beautiful subject to learn, it teaches you a lot about yourself and the world around you.
Did you read this entire email? Why did you choose to do that?
How can I incentivize you to share this newsletter with someone else?
Maybe similar - but I'd also say that the value of benefits is subjective (this is probably captured by 'social'). But in order to make benefits outweigh costs, the framing of the value of certain benefits would need to be changed (for example, taking vacation at work at some places is seen as a negative social behavior - if we change the framing, the benefits can go up).
A modern economy circulating products and services throughout the world doesn’t need money or sovereign countries (national currencies) to be successful. Today, we’ve the scientific knowledge and technological skills to convert our natural and artificial resources into daily life-sustaining deliverables: food, housing, education, healthcare, infrastructure, and employment demands. What we lack is unity, a global framework built upon fair and humane laws and safe and healthy industrial practices. I hypothesize that humanity can end poverty and reduce pollution by abandoning wealth and property rights, and instead adopt and implement an advanced resource management system that can provide “universal protections for all”. Replacing customary political competition altogether, this type of approach, which I named facts-based representation, allows us a better way to govern ourselves and our communities, basing policy and decision making on the latest information, in turn improving the everyday outcomes impacting our personal and professional lives.
#scientificsocialism