How To Understand Psychological Incentives - Uri Gneezy - #609

**Chris Williamson** (0:00)
What's happening, people? welcome back to the show. My guest today is Uri Gneezy. He's a behavioral economist, a professor at the University of California, and an author whose research focuses on human incentives. Incentives encourage humans to do things, but they're not as straightforward as you might think. They often have unintended and disastrous consequences for our personal lives, business, and societies. Basically, a bad incentive is worse than no incentive at all. Expect to learn why paying citizens 10 pence for a rat tail is a bad idea, how fining parents for taking their kids on holiday results in more kids missing school, why the Toyota Prius won because of its strange design, how reframing discounts can rapidly change behavior, why Peloton's sales went up when they increased the price, why Coke machines have an outdoor thermometer on them, and much more. In other news, this episode is brought to you by Surfshark VPN. Protect your browsing online and get access to the entire world's Netflix library for less than the price of a cup of coffee per month. If you are using a public Wi-Fi network like a library or a cafeteria or a university, the internet admin can see all of the data, going backward and forward, between your computer and the internet and you do not want that. Also, your internet service provider can see all of that data and sell it to advertisers that target you with ads. Websites are split testing you on prices for products that you are already buying. But most importantly, you don't have access to the entire world's Netflix library. And by using Surfshark VPN, not only do you secure your browsing, but you can change your location to anywhere else in the world and immediately get access to their Netflix library like Americas, where they've got way more Marvel series and movies than you've got anywhere else in the world. All of this is available across unlimited devices, your phone, laptop, iPad, and even your smart TV. Plus there is a 30 day money back guarantee, an 83% discount and three months free. If you go to surfshark.deals slash modern wisdom, that's surfshark.deals slash modern wisdom. In other other news, this episode is brought to you by AquaTru. Over the last couple of months, this has been probably my favorite change that I've made, which is switching from a normal picture filter to AquaTru's four-stage reverse osmosis purification process, which gets rid of 15 times more contaminants than other pictures. It tastes way better, it cooks way better. Over the next few years, I think that water quality is something that everybody is going to focus on. And the filters that you use for AquaTru last between six months and two years. You get four and a half thousand bottles of water out of each set of filters, and it costs less than $250. It also comes with a 30-day money-back guarantee, so you can buy it and try it for 29 days. And if you do not like it, they will give you your money back. Head to bit.ly slash drinkwisdom for $100 off any AquaTru purifier. That's bit.ly slash drinkwisdom. And in final news, this episode is brought to you by Keto Brainz. Keto Brainz Nutropic Creamer is the perfectly dialed beverage to bring you focus on demand. You can start your day right, conquer midday slumps, leverage it as a pre-workout, or simply brighten your day when you're experiencing brain fog. Keto Brainz has efficacious doses of focus-inducing alpha-GPC, BDNF-producing Lion's Mane, alpha-wave-promoting L-theanine, and ketone-stimulating C8 MCT powder. Keto Brainz solves for simplifying your morning routine. You get your ketone-stimulating morning coffee and full doses of key-neutropics, all in one delicious scoop. No mess and no pills. Plus, it tastes absolutely fantastic. Head to ketobrainz.com/modernwisdm and use the code MW20 for 20% off. At checkout, that's ketobrainz.com/modernwisdm and MW20 at checkout. But now, ladies and gentlemen, please welcome Uri Hezkia.
What are incentives for the people that are not indoctrinated into understanding what that is?

**Uri Gneezy** (4:29)
Incentives is something that will make you do a thing that you wouldn't do otherwise. They try to push you in this direction. A common mistake is that incentive is only money. It's definitely not. There are many other things that could be. It could be status, it could be playing computer games, not teaching at class, many other things. But in general, it's something that will make you do a thing that otherwise you wouldn't.

**Chris Williamson** (4:52)
What do you think that economists get most wrong about incentives?

**Uri Gneezy** (4:58)
It's a long list, but basically, if you read about incentives in economics, you see a formula as if it's physics, right? As if you're talking about particles or atoms moving around the world. And that's not the case. We're talking about people. Incentives work. That part, economists got very much right. But we don't always know how they work. Simplifying assumptions that people just, you know, you give them more money, it's better. You give them more incentives. You're going to get more of what you want. That's just wrong. The main thing that people, that economists miss, I think, is that incentives send a signal. When I give you incentive, when I tell you, if you'll do X, I'll pay you $10, then you get the $10. Plus you get a signal that that's what I want you to do. And then you start thinking, why does Uri want me to do this? Is that bad for me? Is that good for me? What are his motives, right? So you get, you start interpreting this. Incentives basically complete a story. You have a story in your mind, you look at the world, and once you get incentives, it helps you to create one sort of a story.