Why nobody likes me: Incentives

In a recent email conversation with some other economists we realised that sometimes people get upset when we talk about people following incentives – as it makes them sound harmless.  Within the conversation I discussed how this was due to the different ways economists and non-economists interpret the word.  My email went as follows:

It could be that people confuse “following incentives” as “making a conscious choice to hurt others”.  There are three key differences:

  1. The incentive we are discussing is at the margin and conditional – the other “good” factors matter, but holding those constant the incentive has an impact at the margin
  2. Not all decisions to follow incentives “hurt others” – in fact the vast majority don’t
  3. And adding to those two is the way we use beliefs and how our unconscious mind functions – often it changes our subjective perspective of and beliefs around things to make doing actions in your personal interest seem more palatable for your conscious mind.  This made sense in an evolutionary sense, as people that were able to ensure the survival of their genes in “good conscious” were more likely to actually survive.  Of course it gets more complicated than that – but it seems consistent with observation and evolutionary game theory.
Of course, stating this would just make peps look at us funny.  Maybe I should put it up as a blog post?
As you can tell, I decided to make a blog post.
Oft times I suspect that much of the most passionate disagreement between economists and non-economists comes from different definitions for shared terms.  I am not sure that this post has helped in that regard 😉
However, sometimes the difference does stem from underlying moral disagreement.  Being able to tell the difference between miscommunication and genuine arguments would be useful.  On a sidenote, here is a cool post on financial economics.
  • Elinor_Dashwood

    Perhaps you spend too much time talking to intelligent and economically literate people Matt, it seems to me that few economists understand the extent to which most people genuinely believe that if one person does something which brings benefit to himself – it must necessarily be at the expense of someone else. Thus, looking after your own interests is selfish and harmful.
    As Prof Crampton said a while back, though I seem to remember he was in turn quoting somebody else – economists are inside the laboratory debating how to make cold fusion work, while outside people are crying heresy and satanism at the invention of the wheel

    • It is a fascinating issue – I suspect that one of the reasons economists tend to focus on the selling the Wealth of Nations as specifically about the idea that people acting in their own interest will do what is in some sense “best”, is to allow for that.

      Also, Rubin’s writing on folk economics indicate that this is indeed the issue – as humans we see zero-sum games everywhere, when in reality voluntary trade allows positive sum game (requires it even).

      However, I think a lot of non-economists get that idea – but when they hear a term like incentives they give it a package of meaning, based on both how they presume we mean it, and how they want to signal their own nature. If their is an inherent bias against the idea of self-interest, they will react negatively to terms that have this connotation – even when the economist is saying something much more innocuous.

      Of course, I don’t blame the economists or the non-economists for this. It is just a fact of life!

      • Bill Patterson

        “If their is an inherent bias against the idea of self-interest”

        Who doesn’t see the role self-interest plays in their own personal life? It’s the question of the appropriate realms where it’s applied, which I would expect is much better commonly understood than non zero sumness. Conflicts of interest are common, even within our own minds. Misunderstanding each others’ terms is an inherent difficulty of language, but it’s also part of the political playing field – making words and concepts feel dirty. It’s difficult to appear non-partisan for any academic or scientist unless they’re aware of the playing field, but that’s a PR problem not an economic one. Whatever field you’re in you don’t have a lot of control over the accepted terms for things, but it’s always possible to be aware of the connotations and try to minimise misinterpretation.

        That quote from Elinor/Crampton/whoever he got it from… “economists are inside the laboratory debating how to make cold fusion work, while outside people are crying heresy and satanism at the invention of the wheel”. Is the joke here that economists don’t realise cold fusion is impossible? Or is it just an unfortunate analogy?

        • “Who doesn’t see the role self-interest plays in their own personal life? It’s the question of the appropriate realms where it’s applied, which I would expect is much better commonly understood than non zero sumness.”

          As I mentioned with Rubin, empirical evidence, both from surveys and experiments, suggest that individuals will often view social interactions through the lens of zero-sum games when it is inappropriate. As individuals we think we have a strong and intuitive understanding of why we make choices, and of why the social structure around us is the way it is – but this type of intuitivism is likely false. One of the clearest examples of this is framing effects!

          This depends strongly on the heuristics people are inherently using to make decisions – heuristics that in term depend on where we think their theory of the mind has come from. I read the Rubin argument as consistent with the view of the unconscious that comes out of neuroscience – where rules may have been developed through evolution, rules that bias our beliefs towards a zero-sum view. Now don’t get me wrong, I’m not fully on that bandwagon, but it is interesting.

          And it reinforce the importance of communication when trying to express what we are saying – all I’ve said here is that the word “incentive” is packed with different meaning for different groups. Unpacking that can help us all have a more rational discussion about trade-offs 🙂

          “Whatever field you’re in you don’t have a lot of control over the accepted terms for things, but it’s always possible to be aware of the connotations and try to minimise misinterpretation.”

          Indeedy.

          • Bill Patterson

            “As I mentioned with Rubin, empirical evidence, both from surveys and experiments, suggest that individuals will often view social interactions through the lens of zero-sum games when it is inappropriate.”

            Yeah, I agreed with that. The part I disagreed with was the “inherent bias against the idea of self-interest”. Viewing things in an inappropriate zero sum way doesn’t mean that there’s a bias against the idea of self-interest. Though biases and heuristics may make it more likely to view innocuous things economists say negatively, for sure.

            • “Viewing things in an inappropriate zero sum way doesn’t mean that there’s a bias against the idea of self-interest.”

              Aha, I misunderstood! Yar this is true, my personal understanding of the issue is a bit more conditional than Rubin’s!

              Biases are tough – I’m pretty sure it wouldn’t be too hard to turn this all around and say that economists are TOO willing to ignore zero-sum games in order to create a double coincidence of wants somewhere 😉