Incentives are the Cornerstone of Modern Life

An incentive is simply a means of urging people to behave in a certain way. The authors explain that incentives play a substantial part in the lives of economists, as economists are always trying to figure out how to tweak incentives in just the right way to affect human behavior. The primary example of a study of how incentives affect human behavior is the Israeli daycare center study, in which parents are fined $3 for picking their children up late. The $3 is supposed to be an incentive for parents to pick their children up on time, but it turns out to be a strong incentive for parents not to pick up their children on time. The authors note that the fine takes away the parents' guilt over picking up their children late. Furthermore, given the high cost of day care, it may be...