What Makes People Do What They Do?

(Photo: 401kcalculator.org)

(Photo: 401kcalculator.org)

John List and Uri Gneezy have appeared on our blog many times. This guest post is part a series adapted from their new book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life. List appeared in our recent podcast How to Raise Money Without Killing a Kitten.”

Money is important. For a long time, economists thought that it was the only thing that mattered. And, in fact, if you want people to do what you want, money can be incredibly useful. Out to entice the best workers? Pay more. Want to sell a product? Discount it, a lot. Want to discourage a bad behavior? Impose a monetary fine.

It seemed a little silly to us though (as well as to other behavioral economists doing work back in the 1990s) to think that money was the only thing that mattered. So we set out to learn exactly when and how monetary incentives work. Along the way, we discovered some environments where incentives don’t work at all. 

The most compelling example of one such environment comes from an unlikely source: day care centers in Israel. In Haifa, day care centers almost uniformly closed at 4pm, and simply depended on the good intentions of parents to pick up their kids on time. Somehow, this worked: parents picked up their children on time and rarely, if ever, came after 4:30pm.

Why were parents rarely late? As Uri will tell you in our book, being late meant relying on the generosity of one teacher, who would inevitably stay late to look after your child. Being late meant facing that same teacher and having to apologize to her for the inconvenience of waiting.

All of which prompted us to wonder: what would happen if these day care centers stopped relying on generosity and started relying on a financial incentive — like a fine — to discourage parents from showing up late? Few would have predicted what we found: introducing a financial penalty for showing up late actually caused parents to do just that. Parents stopped showing up on time entirely.

To come to our surprising conclusion, Uri ran an experiment: Out of 10 daycare centers across Haifa, they randomly chose six and introduced a small fine for parents who showed up more than 10 minutes late in each of them. In day cares where the fine was introduced, parents immediately started showing up late, with tardiness levels eventually leveling out at about twice the pre-fine level. That is, introducing a fine caused twice as many parents to show up late. What about the remaining four day care centers that remained fine-free? Tardiness didn’t change at all. 

The picture that emerged from this experiment, co-authored with Aldo Rustichini, was that parents had a whole set of non-financial incentives for being on time – incentives that were completely incompatible with money. Like, for example, avoiding the guilt of inconveniencing the day care workers. As soon as parents had the option to pay a small fine and avoid that guilt, they took it en masse. [Ed.: this experiment was also discussed in Freakonomics.]

Clearly, there was more to explore, we thought, and our book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life, details our adventures in learning about incentives. When and why do they work? Can we predict their success or failure, and what is needed to achieve the results we want? 

If you want to explore our world further, take the Why Axis Challenge: visit www.thewhyaxischallenge.com, post a photo of your copy of The Why Axis, and be entered to win prizes, including a meeting with Uri, John and Freakonomics author Steven Levitt! Be sure to stay tuned for more posts to come, which will give a glimpse into more ‘undiscovered economics.’

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  1. Jonny says:

    Hidden due to low comment rating. Click here to see.

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    • Marti says:

      They could’ve chosen to stay late pre-fine as well – and it would’ve cost them nothing! Kind of disproves your point.

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      • 164 says:

        I think this topic was covered here a few years back. The conslusion was that with a small fine parents believed they had a right to the extended hours because they were paying extra for it. Without the fine they were taking advantage of the good nature of the care providers.

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    • rowbigred says:

      The parent’s didn’t HAVE to leave work pre-fine any more than they did post-fine. If they elected not to leave work pre-fine, they were making more than if they left (the fully value of their salary for that time). Post fine, if they elected not to leave work, they were still probably making more, just not as much more (the value of their salary for that time – $10). NOT money motivated.

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    • Nrojb says:

      Everyone knows everyone in Israel is paid by the hour!

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    • Lauren says:

      I think this (see first comment that is hidden) is unlikely because work hours are not perfectly fluid or flexible. Many people cannot just add more hours when they weigh their opportunity cost. Not to mention the fact that they were only 10-20 minutes later than before, which is hardly enough time to make a monetary difference at work. Seems more likely that they stopped for coffee (in jest) on the way home.

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  2. Brij says:

    Thanks. Isn’t this the same as culture, and not only rationale, being a determinant of decisions and actions? In some countries, the fine would be more effective than the lack of it.

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  3. Nicholas says:

    I disagree with the experiment, and the reason is the small fee which was charged to the parents.
    In any occasion (let it be speeding, parking etc) if the fee is small, of course nobody would care.
    That’s why fees are big enough so that people would have to thing twice before they act.
    Therefore, I believe that if the fee in the experiment was high, the number of parents being late would have been decreased.

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  4. Steve says:

    Of course a larger fine will create more incentive, but that’s not the point of the experiment. The point of the experiment is that the fee, big or small, makes the parent feel vindicated of their guilt (the original incentive). The guilt is what’s interesting- not the fee.

    Wouldn’t they be paid even more if they stayed at work AND had no fine?

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    • steve cebalt says:

      This post, “Why do people do what they do,” makes me wonder: Why do economists over-promote a new book to the audience most likely to buy it, with so many free samples in blog posts that I don’t feel the need to buy it? I’ve seen enough. Cloaking the book in a little mystery would have been a better application of behavioral economics. Maybe I am supposed to feel guilty, like the daycare parents, if I read so much of it for free. I don’t.

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  5. Marci S says:

    Years ago when my kids were in day care, the day care provider had a problem with some parents picking their kids up on time. She set a fine for lateness and pick up improved considerably. This was an in-home daycare so the parents all knew the provider personally. The fine was $25 for every 15 minutes late so it was pretty hefty (for the early 90s).

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    • JK74 says:

      Yeah, when I had kids in childcare the late fee was $1 (that’s Australian dollar) per *minute*; at the time we were paying babysitters $12-$15 per *hour*, so the fine was 4-5 times that. The only times I was late was due to traffic jams caused by accidents; in both instances the fine was waived. However, everyone knew that if lateness happened more than very rarely, the fine would be enforced.

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  6. tmeier says:

    In my experience the most important motivator for people is social status. Money in most societies gives you status which is why it’s such a good motivator. If a person is given the choice between losing status in the eyes of his social group (and potential social groups) or having money most will require a sum of money which they think will compensate them for the status they have lost – mainly by giving them status.

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  7. Kandice A. says:

    This could explain prostitution…

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  8. Bei says:

    Post fine, the marginal disutility for the teachers to take care of the children is lower so the parents would like to leave their children there since teachers would take better care of the children.

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