BOWLES S 2008

Question 1

David Hume’s perspective

Answer 1

(1) People are naturally selfish (KNAVES) and often act out of private interest. (2) Policies aligning self-interest with social interest may not always work as intended

Question 2

Market failure

Answer 2

When individuals do not consider the effects of their actions on others (spillovers/external effects)

Question 3

Why do complete contracts dont work? (2)

Answer 3

1. assymetric information
2. effort and trust are hard to measure

Question 4

intrinsic motivation (also motive)

Answer 4

ethical motives, doing what feels right

Question 5

extrinsic motivation (also motive)

Answer 5

explicit motive, acting because of rewards and punishments

Question 6

explain non-seperabiityi principle of intrinsic and extrinsic motivation

Answer 6

these two types work together: extrinsic rewards can weaken intrinsic motives

Question 7

4 reasons why incentives sometimes backfire?

Answer 7

1. Framing: incentives may (incorrectly) signal what behavior is considered appropriate
2. Endogenous preferences: incentives may cause us to internalize certain preferences
3. selfdetermination: incentives may reduce motivation to do a certain action for its own sake if we are incentivized to perform that action for monetary sake
4. Information content of incentives:

Question 8

why are counterproductive incentives common?

Answer 8

even if an incentive harms the overall outcome, it might benefit the person in control

Question 9

if people feel overwhelmed, which of the two mental processes usually takes over; self interest or morality?

Answer 9

self interest