Incentives change how we think

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.


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