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Posts Tagged ‘incentives’

How Will Rio's Arrest Bounty Play Out?

An interesting e-mail from a reader:

Hello. My name is Thiago, and I am writing from Brazil. I always read freakonomics posts thru my rss reader and I saw a news today that inspired me to write to you.
 
Rio de Janeiro’s  police started a new policy to incentivize cops to arrest the most wanted drug dealers. The prize: 15 days off and one weekend in a beautiful island at Angra dos Reis with all costs included.

I wondered if this incentive will have a positive effect, whereas there are bad cops who are bribed by drug dealers. What if these bad officers began to been rewarded by drug dealer with tickets to Disney instead of arrest them?


When Graffiti Strikes Back

We’ve written a few times about what we call reverse incentives: comedian and activist Dick Gregory‘s use of the N word; Planned Parenthood turning abortion protestors into a fund-raising scheme; and the “pledge-a-picket” drive.

The latest instance comes from fashion designer Marc Jacobs. It began when the graffiti artist Kidult vandalized Jacobs’s SoHo shop by scrawling “ART” across the storefront. A Twitter war followed, but Jacobs wasn’t done. As The New York Observer reports:


The Economics of For-Profit Prisons

The Times-Picayune reports on Louisiana’s prison ecosystem — and the perverse incentives for sheriffs to keep inmate numbers high:

Louisiana’s incarceration rate is nearly triple Iran’s, seven times China’s and 10 times Germany’s.

The hidden engine behind the state’s well-oiled prison machine is cold, hard cash. A majority of Louisiana inmates are housed in for-profit facilities, which must be supplied with a constant influx of human beings or a $182 million industry will go bankrupt.

Several homegrown private prison companies command a slice of the market. But in a uniquely Louisiana twist, most prison entrepreneurs are rural sheriffs, who hold tremendous sway in remote parishes like Madison, Avoyelles, East Carroll and Concordia. A good portion of Louisiana law enforcement is financed with dollars legally skimmed off the top of prison operations.


The New HIV Drug

An FDA panel just approved the first drug recommended for preventing infection by, rather than limiting the effects of the HIV virus.  Part of the discussion by panel members was classic economics, expressing concerns that the drug’s availability would reduce people’s willingness to take as much care, in particular that it might reduce condom use.  

The same issue has been mentioned and analyzed in various economic studies, including old ones about the effects of mandating car seat-belt use on automobile accidents, and about the impact of sex education on teenage sexual activity and pregnancy.  Any insurance or safety measure generates a moral hazard; the important issue is the net effect on the outcome of interest — in this case, HIV infection.


Kevin Durant Impersonates Russell Westbrook for Sprint

If you have been watching the NBA recently – and with the playoffs going on, you should be – you may have seen the following ad for Sprint.

Often people don’t pay attention to what people say in ads.  But this one – starring Kevin Durant of the Oklahoma City Thunder – has a very interesting opening line: “Man I was double-teamed.  With no one to pass it to, so I pulled up and hit the shot for the win…” 

Let’s think about this for the moment. Durant says he has two defenders on him (i.e. he is double-teamed).  That means – if the other team is playing the standard five players, there are three more defenders on the court. And if Durant has four teammates on the court (and that would be standard), there must be someone open. But Durant says that there is no one to pass it to. 

Hmmmm…. 


Carrots or Sticks? Handicapped Parking Edition

I’m convinced that shame can in many cases provide stronger incentives than a monetary penalty uncertainly enforced.  At a parking place in Luxembourg, the sign on the handicapped parking places reads: “Here is parking for a very handicapped person or a very inconsiderate (unscrupulous) person.”  This might motivate a lot of people better than a $50 fine should they happen to get caught parking there.


The Rise of the Prize

This is a guest post by Vijay V. Vaitheeswaran, who is the China Business Editor of The Economist and author of the just-published book Need, Speed, and Greed: How the New Rules of Innovation Can Transform Businesses, Propel Nations to Greatness, and Tame the World’s Most Wicked Problems.

The Rise of the Prize
By Vijay V. Vaitheeswaran

Could the incentive prize be the most powerful and yet most underutilized tool we have to tame the wicked problems of the twenty-first century?

Prizes in themselves are nothing new, of course. The Longitude Prize — a purse of up to £20,000 — was offered by the British Parliament in 1714 for the discovery of a practical means for ships to determine their longitude. This was an enormous problem on the high seas, as the inability to work out longitude on the sailboats of the age often led to costly and deadly errors in navigation. The greatest minds of the British scientific academy wrestled with this problem, but could not crack it.


Two Ways to Make Them Pay

A reader, who is also a lawyer, writes in with an interesting example of incentives in the courtroom. He tells us about a particular judge in New Hampshire, who developed a strategic approach to collecting fines: I thought you might be interested in this little experiment in economics. People cannot be sent to jail, under the Constitution, for being poor — . . .


How to Get Your Kid to Do Chores

There’s a new iPad app for parents to incentivize children to do chores. HighScore House! sets up a market for parents and children to assign points to chores and exchange those points for rewards.

Co-founder Kyle Seaman tells us that they’ve tracked 150,000 tasks from about 6,000 users in their beta version (full version will launch in a couple months).

HighScore House! shared some data with us: 43 percent of their users are kids between 5 and 9 years old, with an average task completion rate of 54 percent. Girls have a 2 percent higher completion rate than boys. In general, kids seem to favor low-hanging fruit: lower value tasks (usually easier ones) have a higher completion rate. 


How to Get Doctors to Wash Their Hands, Visual Edition

In our latest podcast “What Do Hand-Washing and Financial Illiteracy Have in Common?,” we revisited a topic we wrote about a few years back: how one hospital (Cedars-Sinai Medical Center in Los Angeles) has tried to increase the rate of hand hygiene among its doctors. In the podcast, chief medical officer Michael Langberg regretfully reported that his doctors, like many doctors, routinely failed to wash their hands. Cedars-Sinai came up with a series of computer screensavers and posters that, along with some other creative measures, significantly jacked up the hand-hygiene rate.


What Makes Chuck Skinny?

Weight Watchers has ads in heavy rotation with Charles Barkley saying: “lose weight like a man.” 

You can also hear him mention his success in his Saturday Night Live monologue.

Something is working. Since starting WW, he’s lost 38 pounds. But what about the Weight Watchers program that has him shedding so much weight?

Is it the group weigh-ins?

Is it the famous Weight Watchers point system? 

Or is it something else?


When It Pays to Say "I Don't Know"

In response to our recent podcast called “Why Is ‘I Don’t Know’ So Hard to Say?,” a reader named Timothy McCollough writes in with a most interesting story. He teaches at a private international school in Santo Domingo, Dominican Republic. His courses include two sections of AP microeconomics, sociology, and “regular economics.” Because it’s a private school, he adds, “we have freer reign to set up classroom incentives and engage students as we see fit.” For instance:

In my classroom, students lose 1/4 point for wrong answers on quizzes. But for writing “I don’t know,” they get 1/4 point. (A correct answer is 1 point). The rationale is that if someone is in a medical emergency, and someone asks me what should be done, the answer “I don’t know” is much preferable to a guess. “I don’t know” leads the questioner to ask someone who hopefully is knowledgeable.


What's Wrong With Cash for Grades? (Ep. 83)

Our latest Freakonomics Radio on Marketplace podcast is called “What’s Wrong With Cash for Grades?”

(You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

In it, Steve Levitt talks to Kai Ryssdal about whether it’s effective to pay kids to do well in school. Levitt, along with John List, Susanne Neckermann, and Sally Sadoff, recently wrote up a working paper (PDF here) based on their field experiments in Chicago schools. Levitt blogged about the paper earlier; here’s the Atlantic‘s take.


"Football Freakonomics": Incentives

Today’s question on “Football Freakonomics” is a tricky one. Which incentive is stronger for an NFL player: landing a big contract or winning the Super Bowl?

It can be devilishly hard to find out what truly motivates people to do what they do. There are a lot of reasons for this. Different people have different preferences; an incentive that works for a while may wear off over time; and it’s dangerous to rely on what people say about their motivation, since most of us are concerned about saying “the right thing.”

It’s better, therefore, to measure actual behavior – in this case, for instance, how players perform before and after signing a big contract.


What to Do With Cheating Students?

I’m nearly certain that a pair of students cheated on my final exam—the probability they had so many identical answers on the multiple-choice exam is infinitesimal. If I pursue them, it takes me time, and there’s no assurance they will be found guilty. If I don’t, I’ll feel badly about giving them an undeserved grade. Even for fairly risk-averse students, cheating seems like a good idea. I doubt that most cheating is caught; and unless the penalty is very severe (expulsion) and/or the students’ costs of contesting the accusation are high, and both are very well-publicized, the incentive to cheat for students with weak consciences seems overpowering. To salve my own conscience I’ll report them, although it’s probably a waste of my time; but I doubt that reporting them will deter their future cheating or deter others very much.


We Are Shocked — Shocked! — to Learn that College Football Coaches Exhibit a Conflict of Interest When Rating Teams

File under “Not Surprising But Still Interesting.” A new working paper by Matthew Kotchen and Matthew Potoski makes these claims:

Using individual coach ballots between 2005 and 2010, we find that coaches distort their rankings to reflect their own team’s reputation and financial interests. On average, coaches rank teams from their own athletic conference nearly a full position more favorably and boost their own team’s ranking more than two full positions. Coaches also rank teams they defeated more favorably, thereby making their own team look better. When it comes to ranking teams contending for one of the high-profile Bowl Championship Series (BCS) games, coaches favor those teams that generate higher financial payoffs for their own team. Reflecting the structure of payoff disbursements, coaches from non-BCS conferences band together, while those from BCS conferences more narrowly favor teams in their own conference. Among all coaches an additional payoff between $3.3 and $5 million induces a more favorable ranking of one position. Moreover, for each increase in a contending team’s payoff equal to 10 percent of a coach’s football budget, coaches respond with more favorable rankings of half a position, and this effect is more than twice as large when coaches rank teams outside the top 10.

 


Straight A's If Your Roommate Dies?

Several students claimed in class that our university will give you straight A grades in the semester in which your roommate dies. I said I doubted this claim for two reasons. First, it creates a moral hazard: you are more likely to engage in behavior that would kill your roommate; you might even kill him/her yourself. Second, it will generate adverse selection — people will be more likely to want to room with the dying or those in bad health.

Given these difficulties (and the absurdity of the story), I am 99.99 percent sure that this is a local urban legend. A similar, equally implausible student urban legend at U.T.-Austin is that you receive free tuition for the rest of your college career if you are injured by a university-owned vehicle. I don’t see any adverse-selection problem here, but it sure creates a moral hazard!


Beware: This Blog Apparently Causes Academic Fraud

Way to scapegoat, Chronicle of Higher Education!

An article about a Dutch psychologist accused of faking his research data wonders if academic fraudsters are responding to the wrong incentives:

Is a desire to get picked up by the Freakonomics blog, or the dozens of similar outlets for funky findings, really driving work in psychology labs? Alternatively—though not really mutually exclusively—are there broader statistical problems with the field that let snazzy but questionable findings slip through?


Paying People to Quit: What Law Schools Can Learn From Zappos

My favorite incentives book tells the story of how after a week of training, Zappos offers new employees a one-time, one-day offer of a cash bonus if they will quit (As noted in the Freakonomics Radio hour, “The Upside of Quitting”). I describe this as an anti-incentive because even though the Zappos offer on its face gives employees an additional reason to quit, in practice it keeps employees on the job longer.

The vast majority of trainees turn down the offer during training – resisting the temptation to take the money and run. Then almost no one quits in the initial months after training because they’d feel like fools to quit for nothing when they could have quit for money. The cognitive dissonance would be too great. This is the power of resisted temptation.

But in a recent Slate piece, Akhil Amar and I deploy the Zappos idea for a different purpose – to reduce the concern that law schools are admitting students who are unlikely to pass the bar.


Why Does the Worldwide Financial Crisis Fester So?

In today’s Journal, David Wessel nails it. (If you ask me, Wessel nails it consistently.) First, he asks the question that needs to be asked:

It has been two years since the flames were first spotted in Greece, yet the blaze still hasn’t been put out. Now it has spread to Italy.

It’s been five years since the U.S. housing bubble burst. Housing remains among the biggest reasons the U.S. economy is doing so poorly.

On both continents, there is no longer any doubt about the severity of the threat or the urgent need for better policies. Yet the players seem spectacularly unable to act.

What’s taking so long?


The Pricing Strategy of Omelets

A café in Seattle offers a 3-egg omelet breakfast for $7.99, and a 6-egg omelet breakfast for $9.99. They will let two people split the 6-egg omelet, and even let the two people order one slice of different kinds of toast with the shared omelet. Is this pricing strategy crazy?

Perhaps, but unless each person would order a 3-egg omelet otherwise and pay $15.98, perhaps not. The marginal cost of making the 6-egg omelet is really just the 3 eggs, which cost much less than $2. The good deal on the shared 6-egg omelet induces a couple to split it, and stuff themselves, rather than split a 3-egg omelet, which my wife and I often do. The incentives provided by this pricing decision may actually raise the café’s profits.

(HT to MH)


In Some Elections, Second Best Might Be Good Enough

On Tuesday, Nov. 8, Portland, Maine will hold its first mayoral election in 88 years. (The mayorship previously rotated between city council members.) But it’s going to be unusual for another reason: voters will use a ranked choice system, which means they have to list the 15 candidates in order of preference. An image of the ballot appears below. Here’s the AP’s David Sharp reporting on the complexities:

The ballot is too complicated to be understood by the city’s voting machines, so only first-place votes will be announced on the night of the election, said Caleb Kleppner, vice president of TrueBallot Inc. The final outcome of the race won’t be known until the following day when the ballots are scanned and all of voters’ rankings are extrapolated, Kleppner said.


Surprise: Money Still Beats Goodwill as Incentive for Organ Donors

If you’re a regular reader of this blog, you know we write a lot about organ donation and incentives. Like whether registered organ donors should get priority when it comes time to get in line themselves. Or whether the transplant market is too restrictive.

A recent Bloomberg column by Virginia Postrel highlights the difference between goodwill and cold hard cash as incentives to donate, not to mention the legal limits that exist to prevent transplants going to the highest bidder.


Denmark Levies the World's First Nationwide Fat Tax

This week, Denmark begins a large-scale incentives trial of sorts by becoming the first country to impose a nationwide fat tax. From now on, foods in Denmark with saturated fat content above 2.3% will be taxed 16 Danish kroner ($2.87) per kilogram of saturated fat; which works out to a tax of about $1.28 per pound of saturated fat. The tax was reportedly preceded by weeks of Danes stocking up on items like butter, red meat and pizza.
The issue of taxing fatty or sugary foods (and more broadly, the effectiveness of behavioral nudges) has been a topic of repeated discussion on this blog. James McWilliams posted last December on studies which indicate that while taxing sugary sodas reduces consumption, others have shown soda taxes to be ineffective at reducing obesity rates. Proof, McWilliams argues, that taxing specific food items is ultimately ineffective, since consumers can simply substitute sugar from other non-soda sources.


News for Dieters: Old Habits Die Hard

If you’re trying to lose weight, making a small change might help. A new study (summarized by the BPS Research Digest) finds that using the non-dominant hand can significantly reduce the kind of habitual eating that many indulge in without even noticing.
Psychologists invited 158 subjects to watch movie trailers in either a movie theater or a university department meeting room and provided participants (some habitual popcorn eaters, some not) with either stale or fresh popcorn. They found that “in the cinema setting the habitual popcorn eaters ate just as much of the popcorn when it was stale as when it was fresh.


The Debate over Teacher Merit Pay: A Freakonomics Quorum

The term “merit pay” has gained a prominent place in the debate over education reform. First it was former D.C. schools chancellor Michelle Rhee trumpeting it as a key to fixing D.C.’s ailing public schools. Then a handful of other districts gave it a go, including Denver, New York City, and Nashville. Merit pay is a big plank in Education Secretary Arne Duncan‘s platform; and Chicago mayor Rahm Emanuel has just launched his own version of merit pay that focuses incentives toward principals.
There’s just one problem: educators almost universally hate merit pay, and have been adamantly opposed to it from day one. Simply, teachers say merit pay won’t work.
In the last year, there’s been some pretty damning evidence proving them right; research showing that merit pay, in a variety of shapes and sizes, fails to raise student performance. In the worst of cases, such as the scandal in Atlanta, it’s contributed to flat-out cheating on the part of teachers and administrators. So, are we surprised that educators don’t respond to monetary incentives? What makes teachers different?
For answers to these and related questions, we decided to convene a Freakonomics Quorum.


How to Improve iPhone's New Charity Snooze App: Pick an Anti-Charity

A new iPhone app links your alarm clock snooze button to your wallet. Every time you hit snooze, you pay. To be precise, 25 cents goes to charity. Whilst I admire the charitable impulse and the entrepreneurialism here, I do wonder how effective this commitment device will be. A quarter isn’t a lot. Particularly when in a deep slumber. And the money goes to a good thing. Two slight twists on this app would intrigue me:
1)      The anti-charity. A popular option at stickK.com (disclosure: Ian Ayres, fellow Freakonomics contributor, and I are co-Founders of stickK.com), is to pick an “anti-charity” such as the Bush or Clinton Presidential Libraries, depending on your particular persuasion (those in the UK can choose their most despised football team).
2)      The reverse: Donate if you do NOT press snooze. Set a goal for money to raise for a charity you love. Every day you do NOT press snooze, you add money to your “to donate” pot. (Yet another disclosure: this would thus work similarly to the American Cancer Society’s http://www.chooseyou.com campaign, which is powered by stickK.com).


Pay to Play: Should Registered Organ Donors Get Priority as Recipients?

The organ donor waiting list in America is a long one. There’s far too much demand for a very limited supply. In 2010, 89,316 people were on the kidney transplant waiting list, while the number of living donors was only 6,282, and the number of deceased donor transplants was 10,622. Freakonomics is no stranger to the repugnant discussion of the organ market. America’s particular organ donation policies, however, aren’t practiced everywhere. Singapore and Israel give priority to potential recipients who were already registered donors. A new working paper written by Judd B. Kessler of Wharton, and Alvin E. Roth from Harvard further tests this idea of priority-to-participants in an incentivized game. Here’s the abstract:


Will Rahm Emanuel's Merit-pay System Work Where Others Haven't?

Last week, Chicago mayor Rahm Emanuel announced that he’s rolling out a merit pay program specifically for school principals, using $5 million in donated funds. The plan is particularly bold considering its announcement comes on the heels of quite a bit of evidence, from research to scandals, showing the faults of merit pay.

In March, we wrote about Harvard economist Roland Fryer‘s study on New York City’s failed merit pay experiment, the Schoolwide Performance Bonus Program, which was shutdown last month. A subsequent RAND report echoes much of Fryer’s findings:

…the theory underlying school-based pay-for-performance programs may be flawed. Motivation alone might not be sufficient. Even if the bonus here had inspired teachers to improve, they might have lacked the capacity or resources — such as school leadership, expertise, instructional materials, or time — to bring about improvement.