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July 19 - July 31, 2025
People respond to incentives, although not necessarily in ways that are predictable or manifest. Therefore, one of the most powerful laws in the universe is the law of unintended consequences.
“the economic approach.” That’s a phrase made popular by Gary Becker, the longtime University of Chicago economist who was awarded a Nobel Prize in 1992. In his acceptance lecture, he explained that the economic approach “does not assume that individuals are motivated solely by selfishness or gain. It is a method of analysis, not an assumption about particular motivations…. Behavior is driven by a much richer set of values and preferences.”
In his Nobel address, Becker suggested that the economic approach is not a subject matter, nor is it a mathematical means of explaining “the economy.” Rather, it is a decision to examine the world a bit differently. It is a systematic means of describing how people make decisions and how they change their minds; how they choose someone to love and marry, someone perhaps to hate and even kill; whether, coming upon a pile of money, they will steal from it, leave it alone, or even add to it; why they may fear one thing and yearn for something only slightly different; why they’ll punish one sort
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The economic approach isn’t meant to describe the world as any one of us might want it to be, or fear that it is, or pray that it becomes—but rather to explain what it actually is.
His conclusion: the trait we commonly call “raw talent” is vastly overrated.
This suggests that when it comes to choosing a life path, people should do what they love—yes, your nana told you this too—because if you don’t love what you’re doing, you are unlikely to work hard enough to get very good at it.
Economists have traditionally assumed that the typical person makes rational decisions in line with his own self-interest.
(Economists are known to admire theoretical proofs; thus the old quip: Sure, it works in practice, but does it work in theory?)
Human behavior is influenced by a dazzlingly complex set of incentives, social norms, framing references, and the lessons gleaned from past experience—in a word, context. We act as we do because, given the choices and incentives at play in a particular circumstance, it seems most productive to act that way. This is also known as rational behavior, which is what economics is all about.
Most giving is, as economists call it, impure altruism or warm-glow altruism. You give not only because you want to help but because it makes you look good, or feel good, or perhaps feel less bad.
If John List’s research proves anything, it’s that a question like “Are people innately altruistic?” is the wrong kind of question to ask. People aren’t “good” or “bad.” People are people, and they respond to incentives. They can nearly always be manipulated—for good or ill—if only you find the right levers.
The brilliant rationalist had encountered a central, frustrating tenet of human nature: behavior change is hard. The cleverest engineer or economist or politician or parent may come up with a cheap, simple solution to a problem, but if it requires people to change their behavior, it may not work.
