Editor's Note: This brief take from Can You Incentivize Generosity, is a report on a fascinating study. To read the complete story, click the link at the bottom of this page.
In "The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens", author Samuel Bowles argues that most economists are way behind the curve in understanding what motivates people to behave honestly, fairly, and generously in economic interactions. Bowles, a behavioral economist at the Santa Fe Institute, reveals fascinating new research on economic decision making and encourages us to rethink the ways we design our workplaces and our communities.
How incentives affect our behavior
Bowles provides ample evidence in his authoritative book that the model of Homo economicus doesn’t bear out in real life. For example, in one study, when preschools instituted a fine for every minute parents were late in picking up their kids, parents responded by being late more often, not less. In another study, toddlers who had avidly and spontaneously helped someone in need helped less when given a toy as a reward.
Bowles suggests that incentives like these—rewards and punishments—often fail because they send an unintended message. In the first case, imposing fines for lateness implied that lateness was expected and okay, as long as parents paid; in the second case, rewards sent the message that altruism is something you do for reward, not because it’s inherently gratifying. Incentives can overwhelm people’s good intentions, says Bowles, leading to unexpected outcomes.
“Motives such as reciprocity, generosity, and trust are common, and these preferences may be crowded out by the use of explicit incentives,” he writes. People behave differently than one might expect from economic theories of human nature.
Incentives may cause people to think in terms of cost-benefit calculations, rather than acting on natural goodwill. In one study, participant “investors” were given the opportunity to transfer money to “trustees,” who then received triple that amount and could give some back to investors. When trustees were told that investors could impose a fine if they didn’t return part of the gift, the trustee actually gave back less to the investor. In other words, imposing punishments to prevent the participants from being self-interested served only to crowd out their natural generous instincts. In addition, if the investor declined the right to impose a fine, and the trustee was aware of that choice, the trustee appreciatively gave back more to the investor than in the initial scenario.