Humans respond to incentives just like any other animal, but it’s important to make sure to use the right incentive to get the results that you desire because sometimes incentives can lead to unintended outcomes.
Uri Gneey holds a chair in Behavioral Economics and is Professor of Economics and Strategy at the University of California, San Diego. He is also an author and his latest book, Mixed Signals: How Incentives Really Work will be released in March. Uri is also the co-author of The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life with John A. List.
Uri and Greg discuss the differing ways in which Psychologists and Economists look at incentives, and go over examples of companies like Coca Cola and Toyota using incentives that led to surprising outcomes. They discuss the difference between incentives for quantity versus quality, and how to incentivize the right things in the right way. Uri reveals the results of money incentives in paying people to go to the gym, take tests, or even paying them to quit their jobs. It all revolves around Uri’s axiom that if you understand the signal behind the incentive and can control it you gain a large advantage.
Episode Quotes:
The advantage of understanding signals
32:07: Gifts are really signals of something, right? They're extremely inefficient. Imagine how much time and money is wasted on people going around before Christmas looking for gifts and trying to find something that will match, and then other people have to return it. Just give cash─but it signals what you think about the other person, and the signals, controlling those signals─that's my argument: if you understand that incentive sends the signal, and you control it, you can get a big advantage.
Knowing the right questions will help you get the right answers.
49:34: The problem is that today there is so much data that people think that it's all out there, but they don't know how to get interesting answers because there are lots of people who know how to answer questions. You have very few people who know how to ask questions.
Should we incentivize quantity?
18:29: Very often, people incentivize the quantity instead of the quality dimension, and economists call it multitasking. Turns out that in such situations, what you'll get is exactly what you pay for. (19:38) The quantity versus quality is a really important thing. Don't just incentivize quantity because people are just going to produce more. The quality will go down.
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