I'm interested in economics for one particular reason: incentives are fascinating.
There's the psychology aspect: how can you influence people's behavior? To really do this well you need to understand how people think.
There's the engineering aspect: human society is an enormously complex system, even more complex than the systems we work with in technology today. We can do things to nudge a complex system in one direction or another, but we can't always predict what will happen to it.
And then there are the results: you provide incentives in order to get people to do what you want. And that's a powerful thing! I don't mean this in a cold-blooded way; everybody does this every day of their lives.
Incentives in the Classroom
My wife is a high school teacher, and we had an interesting talk the other day. It was about how she handles providing a classroom supply of extra paper, extra pens, and all that for kids to use when they forget their own.
In years past, she had a system for this. She kept a supply closet, and early in September would give the kids extra credit for bringing in up to two items for the supply closet. Since she did this at the beginning of the year, kids quickly donated all kinds of stuff to get the easy points, and the closet filled up. Before the year had even started she had a year's worth of supplies.
This year, for the first time, she consciously tried not to do that, because she reasoned that it's not really an academic thing — so it wasn't a good idea to give out points for it. Makes sense, right? And besides, the school provides a certain amount of supplies for the teachers which she might be able to use.
But I'm sure you can guess what happened. With almost 200 kids in and out of her classroom each day, all it takes is a few percent each day to need paper and it'll add up fast. So she very quickly ran through her school-provided allotment, and by November, she was bringing in supplies from home to make up the difference.
And thus the dilemma: should she offer extra credit again? Or stick to her principles and not give out points?
As we talked, we came up with basically three approaches to the problem.
Do nothing. This is what she had been doing, and she wasn't really happy with it. The kids could borrow from each other — and some did. Or she could provide her own supplies — which she had started to do. Or kids would just fail the day's assignment when they didn't have the supplies for it... but that's very hard on a public school teacher who wants every kid to succeed.
Positive incentives. This is the extra-credit approach. She had mixed feelings about this at first, until I pointed out that the extra credit was just a tiny fraction of their grade — something like 1% of a single quarter. That isn't going to turn a failing student into a passing one; it might turn a B into a B+, and so on, but that's all. And then she raised the excellent point that roughly 20% (!!) of their grade is class participation anyway. Providing supplies really helps the community of the classroom, just like class participation does, so that's a fine place to apply the extra credit.
Negative incentives. I suggested that another approach would be to penalize the students for coming to class unprepared. Charge kids 1 point (or even just 1/10th of a point) each day that they borrow paper or a pen. The size of the incentive doesn't matter, it just matters that it's negative.
Now, different people will have different feelings about each of these. And you can do different variations on them — charging a penny instead of a point for paper, etc. But those are the basic choices.
Creating an Atmosphere
In practice, both the positive and negative incentives should work. But I pointed out that the main difference between these two is not the first-order results of the incentive ... the main difference is how she will be perceived after applying each one.
Why? Well, even as you incentivize the students with one of these actions, they in turn give you an incentive back with how they react.
If you're the teacher who is chintzy about paper and deducts fractions of points for every little thing, you'll be a Scrooge and the students won't like you. Negative reinforcement yields negative emotions.
But on the other hand, what if you're the teacher who provides extra-credit and then free paper? Why, then you're the wonderfully generous and nice teacher whom they love. Positive reinforcement yields positive emotions.
It's almost Machiavellian: do you want to be feared or loved?
Knowing my wife as I do, in her classroom she works best when she's loved. And so I told her to go back to what she had been doing — give out extra credit to fill up the supply closet. It's funny that after actually dissecting the problem and analyzing it, we came up with the same solution that she'd done more or less instinctively in the first place.