- Postcard test: It should be possible to take a good economics argument and put in n the back of a postcard.
- Grandma test: Most arguments should be intelligible to your grandma.
- Aha principle: If the basic concepts are presented well, economics should make sense.
Why doesn't bribing your kid to wash the dishes doesn't work?
People are motivated by external factors , such as money, and also by internal Psyche such as enjoyment, pride or wanting to d a good job for its own sake. Sometimes, payments cause external motivations to replace internal motivations. Yet for some tasks external motivations like payments can be counter-productive.
When money doesn't work, sometimes the best way to achieve results is to praise the doer for her aptitude and talent in the job, whether or not this praise corresponds to facts. For those reluctant to lie, think of this as a stab at self-fulfilling prophecy rather than as a deliberate untruth.
For rewards and penalties, it not just enough to get the mix of incentives right, you also have to know something of the values of the culture of the people you are dealing with.
Correspondence Bias (Fundamental Attribution Error)
The error is to assume that a single instance of individual behavior represents a deeply rooted personality trait. Instead the behavior is often the result of situational influences. For instance, if someone cuts ahead of us in line, we tend to assume the interloper to be a bad person. But there is a good chance that the cutter simply did not notice those ahead of him perhaps because of stress.
- Offer monetary rewards when performance at a task is highly responsive to extra effort (car salesman)
- Offer monetary rewards when intrinsic motivation is weak (wife cleans up the house for intrinsic reasons; motivating her with money to clean up is not a good idea)
- Pay monetary rewards when receiving money for a task produces social approval. Hedge fund managers receive ego boosts for their millions. They are driven individuals, obsessed with both money and status. The two rewards work in the same direction.
- High rewards tend to make individuals choke. We are afraid of making mistakes. Trying at a task and running risk of failure, brings stress and feelings of low self-esteem. Stressed people tend to confirm to social opinion. They feel out of control and so they look to group think and the security blanket of other people's approval. If a mistake is then made, it was really our fault.
Rewards and penalties fail when individuals feel a resulting loss of control. When we do apply incentives, we should frame them with respect and at least the appearance of consultation. Get the rewards and penalties out of their faces unless of course, rewards bring social status.
Bottom line is that everyone wants to feel in control of something.
Many people have deep seated emotional reasons for being late. Being early or on time sets them up for disappointment and rejection if nobody else shows up on time.
Other people are late because they are indecisive. They are not sure what to do before their appointment, which way to do it, or when they leave on time. Commitment for them is sadness and a denial of plenitude. Commitment obliterates the pleasure of anticipation and augurs only disappointment.
When it comes to art and culture we can do better by focusing on two principles of self-management incentives.
Start by asking "What is scarce?" Is it time, attention, or, in the case of owning Picasso, money?
Admit that we don't case as much about culture as we like to think that we do.
At the end of a visit to a museum, ask yourself which painting stuck with you. As week later ask the same question. Then go and read about those artists or period. This is more useful than reading the art in advance.
Economic reasoning need not be used for small decisions ("Should toilet seat be up or down?").
One way of eliciting honest answers is simply to ask for advice. When people tell us what we should do, their true selves, true desires and true world views come to light. We love being the boss so much that few people can resist unveiling their true selves in this role.
Art of Self-deception
The past self is a sacrificial victim as much as our current selves will be criticized by future selves ten years from now.
Psychologists have written about depressive realism. The depressed tend to have accurate views about their standing in the real world. Bu they are self deceive in one regard- they underestimate their likelihood of escaping depression.
People who fee god about themselves, whether or not the facts merit this judgment, tend to achieve more. They have more self confidence, tend to take more risks ad they have an easier time commanding the loyalty of others. Self deception also protects against distraction.
They key to doing well is to keep our self-deception as a general buffer, but to overcome it selectively for specific problems.
The need for control, or feeling in control, is one of our greatest self-delusions. On a more personal level, a willingness to give up control can make us better teachers. When we teach our children how to drive,w e like to pretend that they will never do anything stupid. We give them a lecture about the long list of things they should never do.
For example, we should make the kid hit the curb or make noises when she is driving. But why don't most people teach these lessons? We want to feel safe and lower our stress during and after instruction. In reality we should be less concerned with our own stress and more concerned with preparing the future driver for the real world. That means dealing with the possibility of error rather than denying it. It means managing your ability to deceive yourself; it means managing your sense of control.
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