Norm wonders whether there is a general answer to the question of whether carrots or sticks work best. There isn’t, but there are some general principles to guide us.
One is that the effectiveness of both is n-shaped in size; weak and strong carrots and sticks can be ineffective relative to middling ones. For example:
1. Weak carrots can fail if financial incentives crowd out other motives, such as altruism, or the desire to show off that one cares, or simply the fun (pdf) of the activity.
2. Strong carrots can also fail. The Yerkes-Dodson law says people can be over-motivated, as this paper showed. And, as Meryvn King pointed out, high-powered incentives in the City have encouraged excessive risk-taking.
3. Weak sticks can fail, if people regard fines as a price, as the Haifa kindergarten experiment (pdf) showed.
4. Strong sticks can fail, if people figure, “I might as well be hung for a sheep as a lamb.” There’s evidence that the US’s “three strikes” laws increased (pdf) crime for this reason.
This implies that a middling stick (carrot) might work better than a very large or small carrot (stick) - though what’s big and small depends upon context.
There are other principles. One is prospect theory. This says people are more averse to losses than gains, which suggests they’ll work harder to avoid a given loss than to obtain a given prize.
But there are also cognitive biases. People might not react to the prospect of punishment because they have high time-discount rates, or are over-confident about their chances of getting caught.
Then there are adverse selection effects. If you give folk incentives, you’ll attract people who do the bare minimum to get the money. For example, paying blood donors attracts druggies with infected blood, or paying folk to get married merely encourages people to get spliced who’ll be bad parents.
There are deadweight costs to consider. These include the costs of detecting whether people have broken the law, or have met the terms of their incentive contract. In the case of incentives, they also include the cost of paying folk for doing what they’d do anyway. I think this is a big argument against giving incentives to people for getting married.
So, there are lots of general principles to consider in designing carrots and sticks.
As to the question: do carrots or sticks work better? The answer is simple. Carrots work best for the rich, and sticks work best for the poor. There’s not much evidence for this. But everyone knows it’s true.
One is that the effectiveness of both is n-shaped in size; weak and strong carrots and sticks can be ineffective relative to middling ones. For example:
1. Weak carrots can fail if financial incentives crowd out other motives, such as altruism, or the desire to show off that one cares, or simply the fun (pdf) of the activity.
2. Strong carrots can also fail. The Yerkes-Dodson law says people can be over-motivated, as this paper showed. And, as Meryvn King pointed out, high-powered incentives in the City have encouraged excessive risk-taking.
3. Weak sticks can fail, if people regard fines as a price, as the Haifa kindergarten experiment (pdf) showed.
4. Strong sticks can fail, if people figure, “I might as well be hung for a sheep as a lamb.” There’s evidence that the US’s “three strikes” laws increased (pdf) crime for this reason.
This implies that a middling stick (carrot) might work better than a very large or small carrot (stick) - though what’s big and small depends upon context.
There are other principles. One is prospect theory. This says people are more averse to losses than gains, which suggests they’ll work harder to avoid a given loss than to obtain a given prize.
But there are also cognitive biases. People might not react to the prospect of punishment because they have high time-discount rates, or are over-confident about their chances of getting caught.
Then there are adverse selection effects. If you give folk incentives, you’ll attract people who do the bare minimum to get the money. For example, paying blood donors attracts druggies with infected blood, or paying folk to get married merely encourages people to get spliced who’ll be bad parents.
There are deadweight costs to consider. These include the costs of detecting whether people have broken the law, or have met the terms of their incentive contract. In the case of incentives, they also include the cost of paying folk for doing what they’d do anyway. I think this is a big argument against giving incentives to people for getting married.
So, there are lots of general principles to consider in designing carrots and sticks.
As to the question: do carrots or sticks work better? The answer is simple. Carrots work best for the rich, and sticks work best for the poor. There’s not much evidence for this. But everyone knows it’s true.
"Carrots work best for the rich, and sticks work best for the poor. There’s not much evidence for this. But everyone knows it’s true." One of your better jokes, Mr D.
Posted by: dearieme | July 12, 2008 at 06:14 PM
Unless you are a rich guy called mosley, he seems to like sticks most, but the shape of a carrot might do if sticks are unavialible.
Posted by: passer by | July 12, 2008 at 07:23 PM
the Haifa kindergarten experiment (pdf)
???
Posted by: jameshigham | July 14, 2008 at 11:02 AM
I liked the snark at the end. Great!
And its strange too, given diminishing marginal returns to money. You would have thought sticks were more effective than carrots for those who already have lots of carrots. -)
Posted by: reason | July 17, 2008 at 09:03 AM