News Flash: People Need Stick, Not Just Carrot

A team of German economists has found that the risk of punishment is an essential factor in a money-making venture. Common sense already tells us this is true. But it is nice to see it confirmed in an academic study. The economists designed a set of investment games in which participants could join one of two groups: Group A, which never penalized its members, or Group B, which did. Initially, more participants joined Group A, but when they saw that the returns were higher in Group B, they switched. This would seem to have all sorts of interesting implications in the areas of cooperation, free riding, and incentives. “The bottom line of the paper is that when you havepeople with shared standards, and some who have the moral courage to sanction others, informally, then this kind of society manages very successfully,” says Bettina Rockenbach, the study’s senior author. Bededict Carey wrote about it in today’s N.Y. Times, citing an article in Science.