Economics is about incentives – negative or positive,
economic, social or moral. This
chapter explores the beauty of incentives, and how powerful they can be. For
example, researchers ran an experiment to understand what motivates people to
donate blood. They began giving out small stipends for blood donation, and they
found that the number of donations actually dropped! It turned the noble act of charity (a strong moral incentive) into
a painful way to make a few dollars. However, had the stipend been much larger,
it would have worked the other way, increasing blood “donations”, but by
dangerous and unethical means!
Thus, the chapter also examines the dark side of incentives
- cheating. Who cheats? Just about everyone, given the right incentives. A teacher whose class is likely to fail an exam and get held
back a year, has just as much incentive to cheat on the exam as the students
taking it. As does a sumo wrestler whose rank, earnings, social status and
entire lifestyle, may have to be relinquished, due to the loss of just a single
match!
How does one explain the sudden disappearance of seven
million American children? Revised tax laws! “What? Those are two completely
unrelated statements”, one might think. Not when the book is done explaining -
when tax payers needed start providing proof of life of dependant children they
claimed to have instead of simply listing them, seven million made-up children
vanished into thin air overnight!
Using these real life examples, some absurd, and some
seemingly normal ones viewed differently through the genius economic brain of Steven
Levitt, the book illustrates why and how cheaters cheat. And how the tools of
economics can be used to catch them!
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