Incentives Change Marginal Behavior

It’s not all about incentives.

Incentives matter. Incentives are one of the key lessons of economics. People don’t just act, they act for reasons. It’s not Brownian buying & selling & inventing & marketing. & cheating & conniving & colluding for no reason at all.

But there are limits. There aren’t enough lollipops in the world to make me shoot a stranger (to pick an extreme example). How, then, to talk about incentives sensibly and with awareness of what they can & can’t do?

When I first started focusing on incentives they seemed almost magical. If only I could contrive the right incentives I could get people to do anything. This perspective, of people as machines I tweak, is deeply dysfunctional. It doesn’t work because people are complicated and will do what they want. As a recovering narcissist, though, I’m prone to this kind of thinking.

My working model is that incentives change marginal behavior (margins are another of those key lessons of economics). If I’m on the fence about doing this or that, the incentives I experience will nudge me this or that way.

To take a geeky example (this is Geek Incentives, after all), when programmers are punished for not having tests, they will write tests. Awful, useless, expensive tests. But tests. The incentives mattered. Programmers who wouldn’t have written tests are now writing tests.

But not good tests. Punishment for not writing tests is not sufficient for the writing of good tests. That requires, for those who can’t write good tests already, incentives to learn. The most effective of those incentives are social or intrinsic (because some is curious or loves learning).

Now when seeing a situation and wanting to apply incentives, I think about the marginal behavior that might change as a result. I’m not popping a new piano roll in the player piano. I’m nudging a little & that’s all I can do.