Offering unselfish people incentives could backfire for companies

June 20th, 2008 - 4:09 pm ICT by ANI  

Washington, June 20 (ANI): Individuals often sacrifice their personal self interest for the common good and expecting them to behave selfishly by giving incentives can lead to bad policy, a new research has warned.

Professor Sam Bowles, from the Santa Fe Institute, in New Mexico, said incentives offered on the basis of “greed is good” could backfire for companies.

He argues today in the journal Science that economics will get it wrong, sometimes badly so. He points to new experimental evidence that people often act against their own self-interest in favour of the common good, and they do so in predictable, understandable ways.

Poorly-designed economic institutions fail to take advantage of intrinsic moral behavior and often undermine it.

Among the examples he cites are six day care centres, which imposed a fine on parents who picked their children up late. The effect? Lateness doubled, and it stayed high even when the fine was removed.

Another example is a study this year, which showed that women donated blood less frequently when they were paid for it than when it was an act of charity.

These examples show that economists ignore human altruism at their peril. Standard economic theory assumes that incentives that appeal to self-interest won’t affect any natural altruism that may exist, but that assumption is clearly wrong.

Bowles discusses the research to date that helps to explain when and why that assumption breaks down.

As the world becomes more interconnected and the resulting challenges to humanity increase, learning to harness these altruistic impulses becomes even more important, Bowles says. (ANI)

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