Lecture 1 (intro) Flashcards
What are regulations and when do we use them? What is the disadvantages
- Restrictions, bans, laws, etc.
impose behavioral limitations
that individuals or firms are
expected to comply with. Regulation sets clear protocols and
expectations of what is required
from individuals and corporations
and serves as benchmark for
behavior. - When consequences of not
following them are harmful and
pose a high risk to society or
there are negative externalities.
Disadvantage:
* cost of compliance (enforcement)
must be put in place to ensure
regulatory standards are met.
* Time to create and amend
Does regulations work?
Yes and no
In some cases it has worked really good. E.g. smoking indoor. Now we can not believe that we did that before.
In other cases no, because people act ignored and against the regulation. In a school where they start introducing meat free Mondays, some people started not letting their child use the cantina or other ideas.
What is information in this setting? Give examples.
- Once the individual has the
relevant information, it is assumed
that individuals will incorporate
this knowledge into their decision-
making process and make
informed decisions. Furthermore can information be used to educate people. - Example: personal healthcare and
savings programs to enhance
learning and individual knowledge
disadvantage
- When you have to much information, such as the case of “100 things you cannot do when you’re pregnant”.
- Somtimes information is not enough, given the case of smoking. Information on smoking is deadly linked to cancer
and other illnesses, which reduce/eliminate information asymmetry: people were
unaware of the dangers of smoking. But people still avoid this information and continue smoking.
Monetary incentives
- Incentives (taxes, fines, subsidies,
bonuses etc.) are powerful tools to
modify behavior - Their efficacy depends on how
they are designed and on their
interaction with intrinsic and social
motivations
Disadvantages:
- Incentives can create/break habits, example with the Israel kindergarten, who introduced a fee for parents coming late to pick up their kids. It had the opposite effect. Now parents felt like they had payed for the extra time the caretakers had to use on their kid, and then it did not feel to bad picking them up to late. The monetary incentive changed the social norm, Gneezy U. & Rustichini A. (2000). A fine is a price. The Journal of Legal Studies, 29, 1 –17 .
- Sometimes they may be too high
or too low. Example imagine two group who is collecting trash to a recycle center. One group does it without getting paid and gets a social activistic gain from doing it. People in this group is happy. The other group does the same, but get paid a little, which seems like a good thing. But by paying the group a small amount, it removes the happiness from doing the job volunteeringly and feels kind og cheap. Therefore it depends on how much you pay someone, is to little or to much.
Describe the “The Donation Experiment” by Gneezy and Rustichini (2000) “Pay Enough or Don’t Pay at All”
180 high school students, 16 y-o, Israel, “donation
days”.
- Door by door
more effort more money.
They were examining how much the students earned based on the applied incentive:
- Motivational speech
- Speech +1% of money
collected - Speech +10% of money
collected
The students who earned the most, was the ones who got only the motivational speech. Second come the ones who had speech +10% of money collected. They collected almost as much as the ones the had only the motivational speech. On a pretty clear third place come the ones who had the speech + 1% of money collected, which argues for the disadvantage of using monetary incentives. If you pay too little you may remove the motivation from during volunteering work, which looks god in a social contest. Paying to little is worse than not paying at all.
Another example from the same study
- 160 students, 23 y-o, University of Haifa.
- Answer 50 questions (IQ test) in 45 min. More effort more correct answer
- 60 NIS (120 DKK) for participating
- No incentive
- 0,1 NIS per correct answer
- 1 NIS per correct answer
- 3 NIS per correct answer
Again the ones who got paid the smallest amount for correct answers had the fewest right answer at the IQ test. Again paying to little is worse than not paying at all. But the result showed that paying a bigger amount pr correct answer had better test result then using no incentive. So giving enough can enhance in this case the amount of right answers in an IQ test.
Describe the “Blood donations in Argentina” by Iajya et al. (2013). The effects of information, social and financial incentives on
voluntary undirected blood donations: Evidence from a field experiment in
Argentina. Social Science & Medicine
- 18.500 individuals (18-65 y-o) received flyers inviting
them to donate blood (blood bank in the neighborhood).
The types of invitations:
1. Control (invitation)
2. Information about the benefits on undirected
donations.
3. Information + a T-shirt (blood donors).
4. Information + a mention in the local newspaper
5. Information + a voucher for supermarket (AR$ 20=10
DKK).
6. Information + a voucher for supermarket (AR$ 60=30
DKK).
7. Information + a voucher for supermarket (AR$ 100=50DKK),
Results:
Nobody showed up in the case of the first 5 types of invitations.
Only the higher-valued monetary
incentives 6 and 7 motivated more
donations!
Summarize what is important about incentives.
- Incentives are powerful!
- Incentive may send a “signal”
- Incentive may produce undesired behavior
- Incentives can change habits
- Too little? Too much?
Descirbe the experiments, comment on the main results and
The experiment:
The problem: Late parents, experiment i Hafia, Israel.
Solution: They tried to put a fine on the parents if they were more than 10 minutes late, then they had to pay (10 NIS = 20 DKK). Comment which is really low payment.
The experiment.
- Week 5-16 intervention, looking at late arrivals.
- Test Group: Group with fine for late arrival
- Control group: Group with no fine for late arrival
The main result:
The late arrivals double, but only for the group that had to pay the fine. Parents were more likely to not pick their kids up on time after the fine was introduced, because the fine somehow maked the guilt of not picking up the kids less bad. They could pay their way out of it.
The control group who did not need to paty a fine did not change at all in Late arrivals. So the group with the fine did not affect the control group.
Week 17-20 fine is removed, but the group with the fine does not change behaviour back to the normal level like the control group. The experiment has possibly changed the social norm.
The implications of these results:
The implications of the results are that a fine of this quantity would not scare people away of late arrivals. In contrast it would increase the amount of late arricvals, beacause it reduces the social norm guilt. Instead one could try to increase the amount of the fine to see when it has a decreasing effect.
Introduce the theory of “paying to little is worse than not paying at all”. It removes the motivation and social norm preassure.
In the worst case as the study shows an experiment as this one could change the social norm even after the experiment has eneded.
