Incentives change how we think

by on November 29, 2015 at 12:32 am in Data Source, Economics, Education, Philosophy | Permalink

That is the paper’s subtitle, the title is “An Offer You Can’t Refuse,” and that is the job market paper (pdf) of Sandro Ambuehl of Stanford University.  I found this to be the most interesting job market paper of the year, noting that “most interesting” and “best” are not synonymous, that said I found the quality to be very high too.  The main point is that having commercial economic incentives in place causes us to perceive new information in more positive-sum terms than otherwise would be the case, or at least that is how I interpret his results.

Here is the abstract:

Around the world there are laws that severely restrict incentives for many transactions, such as living kidney donation, even though altruistic participation is applauded. Proponents of such legislation fear that undue inducements would be coercive; opponents maintain that it merely prevents mutually beneficial transactions. Despite the substantial economic consequences of such laws, empirical evidence on the proponents’ argument is scarce. I present a simple model of costly information acquisition in which incentives skew information demand and thus expectations about the consequences of participation. In a laboratory experiment, I test whether monetary incentives can alter subjects’ expectations about a highly visceral aversive experience (eating whole insects). Indeed, higher incentives make subjects more willing to participate in this experience at any price. A second experiment explicitly shows in a more stylized setting that incentives cause subjects to perceive the same information differently. They make subjects systematically more optimistic about the consequences of the transaction in a way that is inconsistent with Bayesian rationality. Broadly, I show that important concerns by proponents of the current legislation can be understood using the toolkit of economics, and thus can be included in cost-benefit analysis. My work helps bridge a gap between economists on the one hand, and policy makers and ethicists on the other.

Of course it also can be said that incentives make individuals less Bayesian in their orientation.  I say who needs Bayesians anyway?  Society is built on a certain faith we all have in the benefits from cooperating with others.  When you know you might be paid to eat an insect, you sample more “yum-pro-insect” propaganda, and you interpret it more favorably.  Furthermore subjects do not in advance predict these self-persuasion effects.  So “bait and switch” marketing techniques may succeed in warming individuals up to ideas, even if the promised prize is eventually yanked.

In any case, how can you not love a paper which has, on p.4, the following sentence: “In the first experiment I use cash to induce subjects to eat whole insects, including silkworm pupae, mealworms, and various species of crickets.”

With or without chili sauce?  The future of commercial society may depend on it.

I enjoyed this sentence too, from p.18:

Participants cannot be forced to ingest insects.

Here is Sandro writing with Muriel Niederle and Al Roth in the AER on the moral plausibility of strong incentives.

1 TallDave November 29, 2015 at 2:33 am

Incentives matter.

2 hamilton November 29, 2015 at 2:58 am

Huh. Neat. This runs contrary to, e.g., Frey and Olberholtzer-Gee, on payments reducing acceptance of negative externalities (relative to being asked to ‘grin and bear it’, as it were). The situations are quite different, though. I wonder under what circumstances outside of the lab this would best apply.

3 Sandro Ambuehl November 29, 2015 at 4:04 am

@hamilton: One way to compare my results to Frey/Oberholzer-Gee is the following: What they show is how attitudes are affected by the information that is conveyed by the incentive itself. What I study the how incentives affect how people acquire and interpret information that is in addition to what is conveyed by the incentive itself. Hence – and this is pure speculation – I conjecture that the effects I find in the experiment are more likely to apply in settings in which people know little about the transaction, but incentives prompt them to get somewhat thorough — but skewed — information before they make a decision (situations with substantial personal consequences that are somewhat unfamiliar, like organ donation, egg donation and the other examples in the paper). By contrast, I conjecture the Frey/Oberholzer-Gee results would apply in settings in which incentives do not prompt people to get much more information about the transaction so that whatever signal is conveyed by the incentive itself carries more weight (e.g. in a voting setting in which a single decision is unlikely pivotal). Empirically, the effect I study appears to outweigh in settings reminiscent of bait-and-switch tactics, such as the military recruitment strategy I briefly mention in section 6.

4 hamilton November 29, 2015 at 12:56 pm

Thanks Sandro! If that’s the reply you have ready on a Sunday at 1am, can’t wait to see what you do at the AEAs. Hope you have a great market!

5 Someone from the other side November 29, 2015 at 2:26 pm

I was in the same class as Sandro in undergrad (although the overlap in our classes was rather limited). And I will freely admit that he was one (of the very few) people whom I genuinely thought to be smarter than me.

Happy to read that he is doing well!

(Also I hated every minute of the time I spent in one of Frey’s seminars)

6 SamuelP19 November 29, 2015 at 4:38 am

I don’t eat bug! Not intentionally, anyway.

7 AB November 29, 2015 at 6:31 am

“Participants cannot be forced to ingest insects.”

The”ethics” jobsworths standing in the way of progress as usual
Ah for the good old days…

8 prior_approval November 29, 2015 at 6:49 am

‘Proponents of such legislation fear that undue inducements would be coercive’

Because money über alles, right?

As Steve Jobs demonstrated, in the case of organ donation.

9 rayward November 29, 2015 at 7:22 am

Shouldn’t this be filed under behavioral economics? Marketers have always known the counter-intuitive advice that if a product doesn’t sell, raise the price. Manipulating (the psychology of) consumers is nothing new, even if it has a new name (Phishing for Phools). Inducing people to consume (abundant) insects is like inducing people to eat invasive fish species: put it on the menu at a high end restaurant and it’s a miracle. After all, if people will eat oysters they will eat anything (think of the brave soul who was the first to eat an oyster). I hosted an oyster roast at my (low country) house Friday evening and we consumed 90 of the little mollusks – my house even has an oyster pit for roasting oysters built next to the patio. Whenever I host an oyster roast I like to tell my guests of my first experience with Bodega Bay oysters (Bodega Bay is north of SF). No, these aren’t the little oysters that can be eaten on a saltine cracker, but massive mollusks, larger than your hand, that must be sliced to be eaten. Have you ever sliced open an oyster and then eaten it? I told this little story Friday evening when we started to run low on oysters and I feared that 90 oysters wouldn’t be enough for my guests. 90 was plenty. Maybe that’s how Jesus fed 4,000 with five loaves of bread and three fish.

10 jack shit November 30, 2015 at 9:09 am

cool story, bro

11 Euripides November 29, 2015 at 9:47 am

A suggestion for Tyler. Propose to Sandro co-authoring a new paper in which subjects are presented with insects in various sauces prepared by Tyler Cowen! Can sauces prepared by a notable foodie be more of an incentive than money?

12 Mark Thorson November 29, 2015 at 10:54 am

I wouldn’t have any problem eating bugs. Once you’ve eaten a few, it’s no big deal. Of course, I’m someone who raises insects for human consumption. Specifically, sepia mutant Drosophila melanogaster. I raise them for their content of sepiapterin, a precursor for tetrahydrobiopterin known to cross the blood-brain barrier. They also have the vestigial wing mutation, but that’s just to make them easier to handle..

13 Curt Doolitlte November 29, 2015 at 10:55 am

Or put in Terms of Wilsonian Synthesis, all individuals make decisions with the information available, and when forced into a decision absent information, rely upon norms and intuitionistic responses dependent upon personal history, or biological instinct – where instinct largely reflects one’s reproductive strategy.

Thankfully we can exit the era of psychology and psychologizing in the next few decades and leave all remnants of the pseudoscience of psychology behind, replacing it with: reproductive strategy, acquisition, property, cooperation, information.

Curt Doolittle
The Propertarian Institute
Kiev, Ukraine.

14 Minority Bolshevism November 29, 2015 at 11:46 am

“An Offer You Can’t Refuse” – “Incentives change how we think”

They sure do.

There are standing offers of instant fame, acceptance into paradise and 72 virgins for blowing yourself up at a location chosen by your employer.
There are plenty of applicants and the offer price has not risen for some time.

It is sort of a field laboratory experiment.

15 Moreno Klaus November 29, 2015 at 1:10 pm

How would the conclusions of this paper change, if people would be sorted between low and high income earners?

16 Sandro Ambuehl November 29, 2015 at 11:53 pm

The subjects in the insect experiments are college students, so they are relatively homogenous. I have data on their weekly spending and family income, but the results don’t vary with them. What is interesting, though, is the variation by IQ (measured by Raven’s matrices). I need to run some more robustness checks, but it currently appears that the self-persuasion effects are stronger for lower-IQ people, both the insect and the online experiment (two different populations).

17 JohnBinNH November 30, 2015 at 11:28 am

Can you talk a bit about how you get the familiy income data? Do you think you’re getting accurate numbers? Do students know the data because they helped fill in the financial assistance forms that are now required?

I ask because when my children were in college, I doubt they knew my income within a factor of two; when I was a college student in the distant past, I know for sure that I did not know my family’s income within a factor of four; I knew almost nothing about what things cost either.

18 Sandro Ambuehl November 30, 2015 at 3:30 pm

Both family income and monthly spending are self-reported. I would be more confident that subjects accurately estimate their own monthly spending than their family income, since they experience that frequently; and I would also conjecture that this is the more relevant measure, as it more closely reflects their immediate financial situation. Neither of those is predictive of the effects. But because this is a college student sample, I did not anticipate to get much variation on this dimension, or to make it a big part of the analysis. So I opted to rather get more precise measures of other variables.

19 Hazel Meade November 29, 2015 at 1:13 pm

Is this the latest in the making-people-eat-insects line of research? I recall one in which people who were forced to eat them afterwards claimed they tasted better than the control group or a group that was given an incentive.

20 Sandro Ambuehl November 29, 2015 at 11:56 pm

Do you have a reference? I’d be interested. (It sounds like a replication of the classic cognitive dissonance experiments.)

21 x November 29, 2015 at 2:40 pm

I ate bugs years ago in China. I was invited to eat the fried scorpions, but I paid for the silkworm pupae and grasshoppers. Big deal.

22 Sandro Ambuehl November 29, 2015 at 11:57 pm

People are very heterogenous in their aversion towards eating insects. In my sample, about 4% would eat them for free, and about 9% would not eat any of them even for $60.

23 Steven Swimmer November 29, 2015 at 5:43 pm

Fascinating that the test case is around eating insects, because many insects are quality foods, eaten by humans around the world.

In fact commercial production of farm-raised crickets and worms for human consumption is expanding. While the idea and texture of insects may not be appealing, when you grind them into flour, they offer high protein foods that in the future could be an alternative to factory farmed animal protein.

On the issue of compensation for things that carry true risk, like donating organs – these cases carry true moral weight. Fascinating that we allow payments for donating blood but not organs. With the near future ability to grow or 3D-Print organs like kidneys, the amount of tissue a donor would give could be minimized… perhaps just a centimeter of tissue. With less peril involved would we then allow payments for such tissue? Would we set limits on how much can be donated?

24 Pshrnk November 30, 2015 at 11:38 am

Good protein source. My mother would still tell I’m a picky eater, yet even I have eaten crickets and meal worms.

25 mike November 29, 2015 at 7:58 pm

Having… political… economic incentives in place causes… politicians… to perceive new information in more positive-sum terms than otherwise would be the case, or at least that is how I interpret his results in the context of politics.

A perfect fit I’d say, using Tyler’s framing.

Continuing with his construct… Society is built on a certain faith we all have in the benefits from cooperating with others. When you know you might be paid to… vote a certain way… you sample more “yum-pro-special interest insect” propaganda, and you interpret it more favorably.

What part of this dynamic do you suppose the SCOTUS did not get with regard to campaign finance?

26 mike November 29, 2015 at 8:08 pm

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

Thank you Upton…

27 Thomas Zhao December 2, 2015 at 8:13 am

Read through.

Those pictures on p.51 are really impressive. You all should try take a look. lol

Wonder if the subjects feel honored or interesting in the experience… As for me, I hate bugs, and I never wants to eat one either… but I would try my best to swallow one for… nonono, not for the 60 bucks. Just wanna tell my fellows someday :”Hey, you know what? I’ve got 60 bucks for eating bugs from Sandro Ambuehl!” That’s the incentive for me.

” but it currently appears that the self-persuasion effects are stronger for lower-IQ people ”

IQ considered as a inherited quality may be influenced by abilities of parents, which also influences personalities of students. It’s kind of hard to untangle the influences… But I believe personalities like risk-taking matter more, probably.

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