Economists Do It With Models

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Fun With Incentives, TED Talks Edition…

August 27th, 2009 · 7 Comments
Behavioral Econ · Incentives

Since I teach introductory economics, it’s not surprising that Greg Mankiw’s “10 Principles of Economics” are often on my mind. Given what I study, Economic Principle #4: People Respond To Incentives is usually the one that resonates most with me. I really like the idea that people (read, employees, students, etc.) can be influenced by the potential rewards put in front of them, since then the main challenge is one of being crafty in designing the reward system. However, apparently nothing is as simple as it would at first appear…while it may be true that “people respond to incentives,” it’s much less clear HOW they respond to incentives. So now you’re telling me that before I can design an awesome contraption of interlocking carrots and sticks I still have work to do in figuring out how and whether people chase after the carrots in the first place? *sigh*

Dan Pink gives a good TED talk on the subject. His thesis is that the traditional carrot/stick model’s success is limited to those tasks that are mechanical or don’t require (literally) out-of-the-box thinking, and he gives evidence that financial incentives actually serve to narrow thinking and are thus counterproductive in a lot of situations. He contends that, in more creative or thoughtful vocations, it is the desire for autonomy, mastery and purpose that form the basis for motivation, and that that this motivation is of a more intrinsic than extrinsic form.

Pink is not the first to bring this up- Paul Lawrence and Nitin Nohria, in their book Driven: How Human Nature Shapes Our Choices, assert that humans possess four basic drives: to acquire, to bond, to learn, and to defend. They then posit that these drives are relevant in the business context and must be addressed in order to get maximum results from paople.

Anyway, enough from me. Here’s the video so you can see for yourself:

Hehe, he got a little Southern Baptist minister at a Texas megachurch on us at the end there now didn’t he? 🙂

P.S. Am still waiting for my invite to give a TED talk. If any of you can make that happen, I’d be pretty pleased with you. kthx. xoxo, econgirl

Tags: Behavioral Econ · Incentives

7 responses so far ↓

  • 1 Dan Pink on Motivation « Economics and Mechanisms // Aug 27, 2009 at 2:04 pm

    […] and it gives a good challenge to mechanism design theorists and economists in general. (Via Filed under: Uncategorized No Comments Comments (0) Trackbacks (0) ( subscribe to comments […]

  • 2 David Reiley // Aug 31, 2009 at 1:49 pm

    To be fair to mechanism designers, Bengt Holmstrom and Paul Milgrom did make a similar point in their 1991 article on “Multitask principal-agent analyses.”

  • 3 Noah Roth // Aug 31, 2009 at 5:22 pm

    Pink suggests that Wikipedia defeated Encarta due to a better incentive plan. However, incentives would affect the quality of PRODUCT, not it’s commercial success. The Encarta product was factually superior, but it commercial failure was due to being expensive at a time when people were not wiling to pay for content, and a competitor was free.

    Imagine I had 2 employees, given the autonomy Pink suggests, and one outperforms the other by 20%. Does Pink, really suggest that they should have identical incomes???

  • 4 Pablo Garcia // Jun 7, 2010 at 9:00 am

    @Noah: I don’t think he is suggesting that they should have identical incomes. And if two people were in the same place and one got outperformed by 20% I think someone would be fired, unless that person brought another skill set that wasn’t measureble but needed.

    I think that pay can still be a motivator but more in the sense that being paid a large sum of money gives you a certain social status. I think that is an intrisic. The value you get from feeling like you are worth a lot. However I don’t have data backing this up.

    I am a fan of incentives, but I also agree, that sometimes extrinsic incentives aren’t enough. I have had friends in college, who hang out with many succesful individuals, and the extrinsic award of success and having nice things still isn’t motivational enough to get peope to complete college.

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