Modern Wisdom #609 - Uri Gneezy - How To Understand Psychological Incentives
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Apr 1, 2023 
Behavioral economist Uri Gneezy, a professor at the University of California, explores the intricate world of human incentives. He shares compelling examples, like why fining parents leads to more school absences and how poorly designed incentives can yield disastrous results. Gneezy discusses the psychology behind consumer behavior, revealing why Peloton thrived after a price hike and how the design of the Toyota Prius influences buyer decisions. His insights emphasize that sometimes, a bad incentive can be worse than no incentive at all.
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Incentives Defined
- Incentives motivate actions you wouldn't otherwise take.
- They're not just monetary; status or other rewards count.
Incentives as Signals
- Economists often view incentives like physics formulas, missing the human element.
- Incentives act as signals, influencing perceptions of the incentivizer's motives.
Integrating Psychology and Economics
- Psychologists often overemphasize intrinsic motivation, neglecting financial realities.
- Effective incentives combine monetary needs with self-esteem boosts.
