Economic incentives do not always lead to desired outcomes from "summary" of Misbehaving by Richard H Thaler
Thaler discusses how the traditional economic theory assumes that people always respond predictably to incentives. However, in reality, individuals often do not act in the way that economic models predict. This discrepancy between theory and reality is due to the fact that people are not always rational decision-makers. One example Thaler gives is the case of tax incentives for energy conservation. Despite offering financial rewards for reducing energy consumption, many people do not take advantage of these incentives. This is because individuals may not be aware of the incentives available to them, or they may not fully understand how to take advantage of them. In another example, Thaler discusses the concept of loss aversion, which suggests that people are more motivated by the fear of losing something than the prospect of gaining something. This psychological phenomenon can lead individuals to make decisions that go against their financial interests, even when economic incentives are in place. Furthermore, Thaler points out that economic incentives can sometimes have unintended consequences. For instance, offering financial rewards for achieving certain goals may lead individuals to focus solely on those goals, neglecting other important aspects of their work or personal lives. In this way, economic incentives can actually hinder the desired outcomes they were meant to promote.- Thaler's argument highlights the limitations of relying solely on economic incentives to shape behavior. While incentives can be effective in some cases, they are not a one-size-fits-all solution. It is important to consider the complexities of human behavior and psychology when designing incentive programs, in order to maximize their effectiveness.
