Note

“Incentives are the cornerstone of modern life. And understanding them — or, often, ferreting them out — is the key to solving just about any riddle, from violent crime to sports cheating to online dating.”
― Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

“If morality represents the way we would like the world to work and economics represents how it actually does work, then the story of Feldman’s bagel business lies at the very intersection of morality and economics. Yes, a lot of people steal from him, but the vast majority, even though no one is watching over them, do not. This outcome may surprise some people — including Feldman’s economist friends, who counseled him twenty years ago that his honor-system scheme would never work. But it would not have surprised Adam Smith. In fact, the theme of Smith’s first book, The Theory of Moral Sentiments, was the innate honesty of mankind. “How selfish soever man may be supposed,” Smith wrote, “there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
There is a tale, “The Ring of Gyges,” that Feldman sometimes tells his economist friends. It comes from Plato’s Republic. A student named Glaucon offered the story in response to a lesson by Socrates — who, like Adam Smith, argued that people are generally good even without enforcement. Glaucon, like Feldman’s economist friends, disagreed. He told of a shepherd named Gyges who stumbled upon a secret cavern with a corpse inside that wore a ring. When Gyges put on the ring, he found that it made him invisible. With no one able to monitor his behavior, Gyges proceeded to do woeful things—seduce the queen, murder the king, and so on. Glaucon’s story posed a moral question: could any man resist the temptation of evil if he knew his acts could not be witnessed? Glaucon seemed to think the answer was no. But Paul Feldman sides with Socrates and Adam Smith — for he knows that the answer, at least 87 percent of the time, is yes.”
― Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

“If you were to assume that many experts use their information to your detriment, you’d be right. Experts depend on the fact that you don’t have the information they do. Or that you are so befuddled by the complexity of their operation that you wouldn’t know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn’t dare challenge them. If your doctor suggests that you have angioplasty — even though some current research suggests that angioplasty often does little to prevent heart attacks — you aren’t likely to think that the doctor is using his informational advantage to make a few thousand dollars for himself or his buddy. But as David Hillis, an interventional cardiologist at the University of Texas Southwestern Medical Center in Dallas, explained to the New York Times, a doctor may have the same economic incentives as a car salesman or a funeral director or a mutual fund manager: “If you’re an invasive cardiologist and Joe Smith, the local internist, is sending you patients, and if you tell them they don’t need the procedure, pretty soon Joe Smith doesn’t send patients anymore.”
Armed with information, experts can exert a gigantic, if unspoken, leverage: fear. Fear that your children will find you dead on the bathroom floor of a heart attack if you do not have angioplasty surgery. Fear that a cheap casket will expose your grandmother to a terrible underground fate. Fear that a $25,000 car will crumple like a toy in an accident, whereas a $50,000 car will wrap your loved ones in a cocoon of impregnable steel.”
― Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

“Who cheats?
Well, just about anyone, if the stakes are right. You might say to yourself, I don’t cheat, regardless of the stakes. And then you might remember the time you cheated on, say, a board game. Last week. Or the golf ball you nudged out of its bad lie. Or the time you really wanted a bagel in the office break room but couldn’t come up with the dollar you were supposed to drop in the coffee can. And then took the bagel anyway. And told yourself you’d pay double the next time. And didn’t.
For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it. Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor. Cheating is a primordial economic act: getting more for less. So it isn’t just the boldface names — inside-trading CEOs and pill-popping ballplayers and perkabusing politicians — who cheat. It is the waitress who pockets her tips instead of pooling them. It is the Wal-Mart payroll manager who goes into the computer and shaves his employees’ hours to make his own performance look better. It is the third grader who, worried about not making it to the fourth grade, copies test answers from the kid sitting next to him.
Some cheating leaves barely a shadow of evidence. In other cases, the evidence is massive. Consider what happened one spring evening at midnight in 1987: seven million American children suddenly disappeared. The worst kidnapping wave in history? Hardly. It was the night of April 15, and the Internal Revenue Service had just changed a rule. Instead of merely listing the name of each dependent child, tax filers were now required to provide a Social Security number. Suddenly, seven million children — children who had existed only as phantom exemptions on the previous year’s 1040 forms — vanished, representing about one in ten of all dependent children in the United States.”
― Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything