Read an Excerpt
Chapter One
What Do Schoolteachers
and Sumo Wrestlers
Have in Common?
Imagine for a moment that you are the manager of a day-care center.
You have a clearly stated policy that children are supposed to be
picked up by 4 p.m. But very often parents are late. The result: at day's
end, you have some anxious children and at least one teacher who
must wait around for the parents to arrive. What to do?
A pair of economists who heard of this dilemma -- it turned out to
be a rather common one -- offered a solution: fine the tardy parents.
Why, after all, should the day-care center take care of these kids for
free?
The economists decided to test their solution by conducting a
study of ten day-care centers in Haifa, Israel. The study lasted twenty
weeks, but the fine was not introduced immediately. For the first
four weeks, the economists simply kept track of the number of parents
who came late; there were, on average, eight late pickups per
week per day-care center. In the fifth week, the fine was enacted. It
was announced that any parent arriving more than ten minutes late would pay $3 per child for each incident. The fee would be added to
the parents' monthly bill, which was roughly $380.
After the fine was enacted, the number of late pickups promptly
went ... up. Before long there were twenty late pickups per week,
more than double the original average. The incentive had plainly
backfired.
Economics is, at root, the study of incentives: how people get what
they want, or need, especially when other people want or need the
same thing. Economists love incentives. They love to dream them up
and enact them, study them and tinker with them. The typical economist
believes the world has not yet invented a problem that he cannot
fix if given a free hand to design the proper incentive scheme. His
solution may not always be pretty -- it may involve coercion or exorbitant
penalties or the violation of civil liberties -- but the original
problem, rest assured, will be fixed. An incentive is a bullet, a lever, a
key: an often tiny object with astonishing power to change a situation.
We all learn to respond to incentives, negative and positive, from
the outset of life. If you toddle over to the hot stove and touch it, you
burn a finger. But if you bring home straight A's from school, you get
a new bike. If you are spotted picking your nose in class, you get
ridiculed. But if you make the basketball team, you move up the social
ladder. If you break curfew, you get grounded. But if you ace your
SATs, you get to go to a good college. If you flunk out of law school,
you have to go to work at your father's insurance company. But if you
perform so well that a rival company comes calling, you become a vice
president and no longer have to work for your father. If you become
so excited about your new vice president job that you drive home at
eighty mph, you get pulled over by the police and fined $100. But if
you hit your sales projections and collect a year-end bonus, you not
only aren't worried about the $100 ticket but can also afford to buy that Viking range you've always wanted -- and on which your toddler
can now burn her own finger.
An incentive is simply a means of urging people to do more of
a good thing and less of a bad thing. But most incentives don't
come about organically. Someone -- an economist or a politician or a
parent -- has to invent them. Your three-year-old eats all her vegetables
for a week? She wins a trip to the toy store. A big steelmaker
belches too much smoke into the air? The company is fined for each
cubic foot of pollutants over the legal limit. Too many Americans
aren't paying their share of income tax? It was the economist Milton
Friedman who helped come up with a solution to this one: automatic
tax withholding from employees' paychecks.
There are three basic flavors of incentive: economic, social, and
moral. Very often a single incentive scheme will include all three varieties.
Think about the anti-smoking campaign of recent years. The
addition of a $3-per-pack "sin tax" is a strong economic incentive
against buying cigarettes. The banning of cigarettes in restaurants and
bars is a powerful social incentive. And when the U.S. government asserts
that terrorists raise money by selling black-market cigarettes,
that acts as a rather jarring moral incentive.
Some of the most compelling incentives yet invented have been
put in place to deter crime. Considering this fact, it might be worthwhile
to take a familiar question -- why is there so much crime in
modern society? -- and stand it on its head: why isn't there a lot more
crime?
After all, every one of us regularly passes up opportunities to
maim, steal, and defraud. The chance of going to jailthereby losing
your job, your house, and your freedom, all of which are essentially
economic penalties -- is certainly a strong incentive. But when it
comes to crime, people also respond to moral incentives (they don't
want to do something they consider wrong) and social incentives (they don't want to be seen by others as doing something wrong). For
certain types of misbehavior, social incentives are terribly powerful. In
an echo of Hester Prynne's scarlet letter, many American cities now
fight prostitution with a "shaming" offensive, posting pictures of convicted
johns (and prostitutes) on websites or on local-access television.
Which is a more horrifying deterrent: a $500 fine for soliciting a
prostitute or the thought of your friends and family ogling you on
www.HookersAndJohns.com ...
The foregoing is excerpted from
Freakonomics by Steven D. Levitt and Stephen J Dubner. All rights reserved. No part of this book may be used or reproduced without written permission from HarperCollins Publishers, 10 East 53rd Street, New York, NY 10022