Incentives in the balance

(featured image: Ruslan/Flickr CC BY SA 2.0 and Thamizhpparithi Maari/Wikimedia CC BY SA 3.0)

We respond to incentives, that is true – but not always in the way that might be expected

An insight to which I often return is the following economic observation, from Steven Landsburg’s The Armchair Economist: “People respond to incentives. The rest is commentary.” It has an irresistible simplicity, and it’s not hard to find plenty of evidence for it: positive incentives make a choice more attractive, and negative incentives less so. But things are rarely quite that simple.

Incentives work because we have a built-in mechanism to establish and evaluate costs and benefits. From our most ancient unicellular ancestors all the way to us here and now, only those individuals who reliably made choices that were better for them – so they were able to live long and prosperous enough to procreate – and who avoided worse choices were able to persistently pass on their genes. This ability allowed all our predecessors, and allows us today, to respond to and navigate nature, seeking out and pursue what is good for us, and evade what is not.

Human activation of incentives

For almost ever, this was a passive affair, in which nature provided the situations and living things responded to them. But one day, very recently (in historical terms), we humans figured out that we could actively manipulate costs and benefits to others (and to ourselves), and thus influence behaviour: we invented incentives.

Since then, reward and punishment – for desired and undesired behaviour, respectively – are widely used instruments to change behaviour, from bribes (extra pocket money) and threats (confiscation of smartphone) in the process of education our children, to, well, bribes (bonuses and promotions) and threats (sanctions and firing) in the workplace. And of course, we see incentives in the world of commerce, with special offers, discounts, coupons, free pens and whatnot, encouraging us to buy cheese or insurance.

You can picture a decision (to either do, or not do, something) as a set of scales on which one side represents the costs and the other side the benefits. What an incentive does is either put extra cost or benefit on the corresponding scale, or take cost or benefit away from it, in order to make it tilt the other way. (Often one and the same intervention can be seen either way. If a coffeeshop charges less for a croissant with a cappuccino than for both items separately, that can appear as an incentive to buy two items rather than one, or a disincentive to buy just one item.)

Making things cheaper or more costly is an obvious application, which can even be done conditionally, like off-peak prices for public transport or holidays. But practically anything that is important to the decision-maker (convenience, effort, time, risk, timing etc), can be manipulated to alter the balance between one choice and the alternative, and hence act as an incentive.

The miracle of the Passe Sanitaire (via ourworldindata.org)

From 9th August 2021 the French government, for example, has made the passe sanitaire – proof of immunity to COVID-19 or a recent negative test – compulsory for a wide range of public activities, including eating or drinking in the outside areas of bars and restaurants. This was at least in part intended as an incentive for people to get immunized: it makes failing to do so costly (no vaccine, no fun). It is also coercive in nature: it takes away a previously existing right from people who choose not to get their jab. And it worked: France’s rate of vaccination accelerated remarkably, overtaking the EU curve which it had been lagging since May of this year.

Stuff the scales

The British government attempted a similar tactic with the personnel of care homes. These house people who are often quite vulnerable through age and various morbidities, even when they are fully vaccinated, and so minimizing the risk of infection is very important. Many employees, however, appear reluctant to get immunized. By the end of July, only 78% of personnel in older adult care homes was vaccinated, and the government itself estimates that some 7% of the 570,000 care home staff (40,000 people) will refuse. Last month, it therefore decreed that anyone working in a care home who is not exempt (for medical reasons) must be fully vaccinated by 11th November.

Like the French pass, this too is a coercive incentive. Hey, if people are prepared to get immunized just to be able to continue to have a beer, they should surely be at least as willing to do so in order to keep their job. That assumption would very likely be valid if jobs were scarce. But there are over a million vacancies in the UK, many of which are for jobs with no more qualification requirements than in the social care sector, for instance in hospitality.  Adding conditions to employment in such a climate will certainly work as an incentive – only not necessarily in the intended direction. Unsurprisingly, the measure is a big worry for care home operators, who already face the most severe acute staff shortages in living memory, according to a open letter to the government issued this week.

A jab to keep my job — but who says I actually want to keep it? (photo: Mufid Majnun/Pixabay)

Exactly how people respond to an alteration to the costs and benefits balance depends on what the alternative is. For government ministers and civil servants with a well-paid job that they enjoy, and who consider vaccination at worst as a minor inconvenience, getting the jab and keeping their job might look like a total no-brainer. But imagine someone in a tough, underpaid job, who is deeply suspicious of a new vaccine that is pushed by people with whom they have little affinity, in a climate with plenty of other low-paid, but less burdensome jobs around. They may well opt for the alternative, choose to check out completely, and move on.

Similarly, the Brussels regional government announced earlier in September that a coronapas will be essential to visit places like gyms or, like in France, bars and restaurants. They hoped this would provide a boost for the vaccination rate in the Belgian capital which, at 51%, limps way behind the national rate of 72%. Now maybe the unvaccinated Bruxellois care little about gyms and bars, or they plan simply hop over the boundary into nearby Flanders (which surrounds the city) for a beer or a steak frites, where at present no pass is needed. In any case, unfortunately the compulsory pass appears to have little effect.

Incentives can be a powerful instrument to change people’s behaviour. But it is advisable to take a good look at what their alternative options might be – especially if the incentive assumes they need or profoundly want to do something. Above all, it is important to evaluate how the incentive will influence the choice they ultimately make from their perspective, not yours, otherwise they may well tell you to stuff your balance leave you alone with your set of scales.

About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Economics, Psychology and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s