Mixed Signals - Uri Gneezy

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• The introduction tells a story about the author lying to Disney World about his son’s age to avoid paying full price, and his son calling him out on it, highlighting the problem of “mixed signals” where words and incentives don’t align.

• Mixed signals lead to unintended outcomes because people respond to incentives, not words. Examples given include encouraging teamwork but rewarding individuals, long-term goals but short-term results, innovation but punishing failure, and quality but paying for quantity.

• The goal of the book is to avoid mixed signals and design incentives that are simple, effective and ethical.

• People naturally create stories and narratives to make sense of abstract events and signals. Incentives can be used strategically to shape the story and meanings people ascribe to events.

• An example is given of a potential Coca-Cola pricing strategy based on temperature that ended up backfiring due to the negative story and public reaction it generated.

• Overall the intro sets up that incentives are powerful signals that shape behavior, and the book will explore how to design incentives to avoid mixed signals and strategically frame situations through the stories they help tell.

• Coca-Cola faced criticism for a planned promotion that would lower prices on colder days. Their failure was leaving the messaging around the idea open to interpretation instead of framing it positively.

• Incentives shape both social and self signaling. Receiving payment for something like recycling may change how others see the action (as money-motivated rather than environmentally-motivated) and how one sees themselves.

• A story is given of government employees in the 1950s who willingly met on Saturdays driven by their work purpose and morale. After overtime pay for Saturday work was introduced, Saturday meetings stopped as the incentive payment changed the social and self signals of that action.

• Incentives are tools to motivate behavior change, but they must be designed carefully to also reinforce positive social and self signals, not just create direct economic motivation. Simply providing incentives does not guarantee success if they undermine intrinsic motivation.

• Signals play an important role in signaling credibility and distinguishing authenticity from faking. Costly signals that are difficult to fake, like tattoos, are more credible than reversible signals like clothing.

• The story uses Jim, an accountant who loves motorcycles and biker culture, as an example. While Jim dresses the part on vacation, he wouldn’t be willing to get a permanent neck tattoo that could damage his professional career, showing he’s not fully committed.

• Tattoos are seen as a costly signal that credibly distinguishes real bikers, who are making a lifestyle commitment, from part-time enthusiasts like Jim. While Jim enjoys the culture, a tattoo would be too costly a signal since it can’t be reversed.

• The story of Ken, a student who got a hotel job, also illustrates how visible tattoos can negatively impact some professional roles by sending the “wrong” signals to clients. Costly signals like tattoos must be considered based on social and career implications.

• In general, the passage discusses how understanding costly versus reversible signals can help distinguish authentic commitments from surface-level interests, and also notes signals must be appropriate for the relevant context and audiences. Credible signals are an important part of signaling game theory.

• Ken, a hotel valet, was denied a front-facing job due to his visible tattoos, which the hotel saw as unprofessional. However, the manager still offered him a kitchen job where guests wouldn’t see the tattoos.

• This demonstrates the strong signaling power of tattoos - they can communicate private information about a person’s values and preferences. Tattoos have changed in meaning over time, from being exclusive to sailors/prisoners to being common among young people today.

• The location of a tattoo also influences the signal it sends. A back tattoo would not have affected Ken’s valet job the way a visible one did. Different body locations send different signals about a person.

• Toyota successfully won the early hybrid car market by leveraging signaling insights. The first hybrid cars from Toyota and Honda were inferior in many ways except fuel efficiency. However, buying one signaled the buyer’s environmental values in a credible way, since it required sacrifice. This encouraged more environmentally-conscious people to buy hybrids from Toyota over Honda’s model.

• Honda’s first hybrid car, the Insight, was a two-seater that did not sell well. Honda then introduced a hybrid version of its popular Civic model, which was easier for engineers and helped the supply chain.

• Toyota’s Prius was initially based on the popular Corolla model like Honda. But the second-gen Prius had a distinctively different look that signaled it was a hybrid. This helped its sales significantly take off from 2003 onward over Honda’s Civic hybrid.

• Many Prius buyers wanted the distinct look to signal their environmental values to others. A study found 57% got it to make a statement about themselves, while only 36% cited fuel economy primarily.

• The visible Prius signal was more attractive to buyers wanting to signal their values than Honda’s less noticeable hybrid versions.

• People get satisfaction from self-signaling or signaling to themselves that they are good people through their actions. A field experiment showed people still paid at a pay-what-you-want restaurant even when payments were anonymous, suggesting self-signaling motivations.

The passage examines how social signals and self-signals interact with incentives. An experiment showed that restaurant customers paid more anonymously than when observed by others. This rejected the idea that social and self-signals simply add up.

When observed, social signaling reduces the value of self-signaling. People feel they are paying to impress others rather than because they are good people. Anonymous payments allow for stronger self-signaling.

Signals can interact in complex ways - social signals don’t always increase behavior. The Prius offered both social and self-signaling that reinforced each other. But incentives need careful design given this interaction.

The passage uses blood donation as a case study. Some donate for altruistic self-signaling reasons like Jane. Joe prioritizes money. Paying donors could attract more like Joe but repel those like Jane, who lose the positive self-signal. A famous study found paid donation in the US attracted more infected donors compared to unpaid UK donation. Incentives shape norms and donor composition. Design matters for achieving intended outcomes.

• Incentivizing only quantity, like number of calls in a call center or miles of railroad track built, can undermine quality if it is not also incentivized and measured.

• Signaling only quantity, through incentives like pay per call or pay per mile of track, tells workers to focus only on that metric and ignore other important dimensions like call/work quality.

• Mixed signals result when what is incentivized (e.g. quantity) differs from what is said to be valued (e.g. quality customer service). This confuses workers on what behaviors are actually rewarded.

• For the call center example, incentivizing only calls completed could lead the worker to rush calls or drop complicated ones, hurting customer experience.

• The railroad example showed how incentivizing only miles of track built allowed for inflated costs and unnecessary extra miles through poor quality work, contradicting the goal of an efficient track.

• Companies and governments need to consider how incentives may influence focus on the easiest to measure metric like quantity at the expense of harder to measure but also important goals like quality, and address this mixed signals problem.

• Paying workers based only on quantity, like number of fossils collected or glass produced, can incentivize inflating the numbers by decreasing quality.

• Incentives need to consider multiple dimensions, like both quantity and quality, to avoid unintended consequences.

• Bus drivers paid hourly have no incentive to take faster routes, while Chilean drivers paid per passenger took shortcuts. Tel Aviv minibus drivers paid per passenger drove very aggressively for speed.

• Rideshare companies initially paid drivers per ride, incentivizing quantity over quality. But they added passenger ratings as another incentive, balancing quantity and quality of service. Low ratings can deactivate drivers.

• Traditional taxi drivers paid hourly or a revenue share only have incentives for quantity, not quality or customer service. Rideshare introduced better accountability through passenger ratings that benefited both customers and good drivers.

The key point is that incentives focusing only on quantity can undermine quality if not balanced with additional quality-related incentives. Multiple dimensions are needed to avoid unintended consequences of simple incentives.

• Analyzing over a billion cab rides in New York and Chicago, a report found that customer complaints to transportation commissions steadily declined after rideshare companies like Uber and Lyft entered the market.

• The data suggests at least some of the decrease in complaints is because taxi drivers are now trying to improve ride quality due to increased competitive pressure from rideshares.

• In some cities, cab companies have launched their own apps with driver ratings to try and compete with rideshare apps. This increased competition appears to be incentivizing better service from taxi drivers.

• Physicians’ delivery method recommendations for childbirth can be affected by their financial compensation structure. When incentivized by fee-for-service models, physicians are comfortable recommending intensive treatments to mothers without medical knowledge but refrain from doing so with physician mothers who understand the risks and alternatives.

• This leads to better outcomes for knowledgeable patients like physician mothers and their babies, who have lower morbidity rates, shorter recoveries, fewer interventions, and lower costs compared to less knowledgeable patients.

• Fee-for-service models provide no incentive for preventative care, which has higher long-term returns. More investment in prevention could reduce mortality rates and healthcare spending.

• Alternative payment models like capitation and pay-for-performance address these issues by incentivizing preventative care and quality outcomes rather than quantity of procedures. While no model is perfect, value-based systems show promise in mitigating conflicts of interest around overtreatment.

• Companies that encourage innovation but punish failures send mixed messages that can deter risk-taking needed for breakthroughs. Cultures allowing mistakes and learning from failures facilitate bolder ideas and more successes in the long run.

The passage discusses the importance of viewing failures as learning opportunities and not punishing them, as exemplified by the Israeli Air Force (IAF). IAF pilots are taught from an early stage that learning from mistakes prevents future errors. Even “near accidents” are treated seriously to illustrate that accidents can come down to luck.

During the Yom Kippur War, two formations of fighters set out on a critical mission despite poor weather. One leader aborted due to the risks, while the other succeeded by chance - both decisions were commended to show leaders can make judgment calls without fear of punishment for failure.

creativity often involves many failures because innovators try more ideas. Rewarding failure rather than inaction encourages experimentation. Several companies, like Merck and Menlo Innovations, implement cultures rewarding fast failure to learn quickly from mistakes.

Blockbuster’s downfall despite past success demonstrates the costs of avoiding change and risk to maintain the status quo. When Netflix emerged with a new model, Blockbuster’s board rejected opportunities to transition and innovate due to fears of short-term profit losses, ultimately leading to their demise. Viewing failures positively and incentivizing risks can enable companies to adapt and thrive through innovation.

• Virgin Cola was launched in the UK and US in 1994 as Branson tried to enter the soft drink industry and compete against Coca-Cola and Pepsi.

• Initially it was popular, but Coca-Cola responded aggressively by giving retailers incentives to stop carrying Virgin Cola. As a result, Virgin Cola started disappearing from store shelves.

• Branson declared the end of Virgin Cola, having lost a lot of money in the process. However, he was not upset by the failure and saw it as a lesson to only enter businesses where they had a clear advantage over competitors.

• The experience did not deter Branson from continuing to innovate and take risks with new ventures. He and his team would learn from failures and look for new opportunities.

• No additional information was provided about Virgin Cola in the given text, so it cannot be summarized that the company went bankrupt after this event. The passage does not state what ultimately happened to the Virgin Cola business.

Here are the key points this passage makes about encouraging long-term thinking while having short-term incentives:

• Politicians and governors often have strong short-term incentives to get re-elected every 2-4 years, so they are pressured to focus on short-term policies that will help them get re-elected rather than long-term investments.

• One proposal to fix this is to eliminate term limits so politicians don’t have to worry about re-election. But extended political tenure is also not ideal as it could lead to lack of accountability.

• Other examples given are sports coaches and teachers. Coaches with job security can focus more on player development, while teachers incentivized only by student test scores may “teach to the test” rather than promoting lifelong learning.

• The ideal is to structure incentives so short-term goals don’t outweigh long-term ones. Don’t punish people for lack of short-term results if focusing on the long run. Make incentive timelines match ultimate goals.

• Policy makers should consider experiments on what incentives work best in different contexts, as one size does not fit all. They should understand trade-offs between short and long-term approaches.

The key takeaway is that if you want to encourage long-term success, you need to make sure short-term incentives don’t dominate and undermine those long-term goals. The incentives should be appropriately balanced and aligned with the actual desired outcomes.

• Exceptional talent can greatly outperform average talent. The gap between highly productive individuals and average individuals is growing. A small number of star performers can outperform a much larger group of mediocre performers.

• Tom Brady is given as an example of exceptional individual talent in football. After leaving the New England Patriots, he led the Tampa Bay Buccaneers to a Super Bowl win in his first season with them.

• Lionel Messi is considered one of the greatest soccer players ever based on his success with Barcelona, but he has not won a major tournament with the Argentine national team, despite being their star player. This shows that individual talent alone is not enough - the team context and fit are also important.

• While individual incentives can motivate individual performance, emphasizing team goals requires team incentives. A balance of individual and team incentives is needed depending on the situation and goals.

• Organizations are not always “unitary players” - there can be internal competition and conflicting interests within a company regarding decisions like pricing. The internal structure of an organization affects how it competes externally.

• General Electric’s goal in developing an engine for Boeing’s new aircraft is to charge as high a price as possible while still keeping the price low enough for Boeing to win the contract over Airbus.

• To study the impact of team vs. individual incentives, the researchers created a laboratory game simulating competition between two teams (like Boeing and Airbus). Each team had three players who set prices between $2-25. The winning team was the one with the lowest total price.

• With team incentives, profits were split equally among team members. This reduced the incentive to free ride. With individual incentives, each player kept the price they set if their team won, creating a temptation to free ride.

• As expected, prices remained higher on average with individual incentives (around $30) compared to team incentives (around $12), as individual incentives led to more competitive behavior between teammates.

• The experiment demonstrated how incentive structures within organizations can impact outcomes, for better or worse. Team incentives foster cooperation while individual incentives may promote internal competition.

• Real world sports examples also show tradeoffs of individual vs. team incentives, like how goal bonuses for soccer players can motivate selfish play rather than passing to maximize team success.

• Wells Fargo implemented aggressive sales quotas and incentives for employees to sell 8 products per customer. This led to widespread fraudulent account openings as employees felt pressured to meet impossible quotas. Over 3.5 million fake accounts were opened.

• Incentives focused solely on quantity without mechanisms to ensure quality produced unintended consequences. Wells Fargo failed to implement proper auditing and penalties for fraudulent behavior.

• A field experiment showed that small $3 fines for late pickups at daycares paradoxically increased lateness. The fines signaled to parents that lateness wasn’t serious and allowed them to buy a “late pass.” Behavior didn’t change even after fines were removed.

• Similarly, £60 fines in Wales for taking kids out of school during term increased unauthorized family holidays, as parents treated it as a worthwhile price.

• The size of fines sends strong signals about what behavior is acceptable. Small fines can reframe negative behaviors as tolerable by establishing them as a price. Incentives must consider psychological and signaling effects to avoid unintended consequences.

• A mother from New Zealand was fined $55 for being one minute late to pick up her child from daycare. The daycare has a flat $20 fee for being late, plus $35 for 1-30 minutes late and $85 for 31-60 minutes late.

• According to the daycare, only two parents were charged under this policy in a year. The author notes most daycares wish they had such effective policies in enforcing pick up times.

• As an example of an even steeper penalty, some Paris daycares take late-picked up children to the police station, requiring parents to pick them up there. This severe penalty makes lateness extremely costly and sends a strong signal it is frowned upon.

• Similarly, had the Welsh government imposed large enough fines for taking kids on vacation during school term, it likely would have been an effective deterrent. The size of the incentive serves as a signal of how strongly a behavior is discouraged.

• In summary, large, severe penalties can be very effective at changing behavior if they clearly signal to people the undesired behavior has serious consequences. Small or minor penalties may not be a strong enough incentive.

• In Amsterdam in the 1600s, officials installed wooden stakes along narrow streets to prevent houses from collapsing into each other. To fund this, the government introduced a tax based on house width - wider houses needed more stakes and paid more tax.

• This led people to build very tall, skinny houses with steep stairs to avoid the tax. The stair and house designs in Amsterdam today are a result of these historical tax incentives.

• Two examples are given of small changes to incentives that had big impacts:

1. Airline loyalty programs that reward frequent flyers incentivize business travelers to choose the airline they have an account with, even if more expensive, since someone else pays.

2. In 1978 China, farmers were allowed to keep excess crops they grew beyond quotas. This incentive led to much higher yields, and was the start of China moving away from communism.

The key takeaway is that incentives need to be carefully designed to change behavior - just providing money may not be effective if not framed properly relative to the overall cost or decision.

• Mental accounting refers to how individuals organize, evaluate, and track their finances mentally in separate budgets and categories rather than viewing money as completely fungible. People treat equivalent expenses differently based on the mental account (e.g. disliking parking fees more than dessert prices).

• A field experiment on Edmunds.com found that framing a $450 vehicle discount as a $450 prepaid gas card more than doubled the success rate, showing the power of targeting incentives to preferred mental accounts.

• Another experiment with Singapore taxi drivers found that framing a $100 health incentive as covering a day’s rental fee (which drivers dislike paying) led to greater exercise improvement than a simple $100 cash incentive.

• Redfin could potentially increase incentive effectiveness by framing refunds related to new home costs like home improvement rather than a simple discount, appealing more to consumers’ mental accounting.

• A school experiment tested “loss aversion” incentives, giving teachers $8,000 upfront to return based on student performance, versus traditional bonuses. It aimed to leverage people’s tendency to lose more psychologically from losses than gain equally from gains.

• Loss aversion and regret aversion are psychological phenomena where people are motivated more by avoiding losses and regrets than gaining rewards.

• The story shares an anecdote where the author’s grandfather became addicted to buying lottery tickets every week to avoid the regret of losing out on a large potential jackpot if his numbers had come up.

• The Postcode Lottery in the Netherlands leverages regret aversion by making the winning postcode known to everyone in that area. People are motivated to buy tickets to avoid the regret of their neighbors winning large prizes had they bought a ticket.

• The lottery strategically uses advertising that emphasizes not winning could result in long-lasting regret from missing out on millions by just not buying a ticket. This preys on people’s innate aversion to future regret to drive ticket sales.

• Effectively framing incentives around avoidance of loss or regret, rather than just potential gains, can be a more motivating way to influence people’s decisions and choices according to behavioral psychology.

• This passage discusses how anticipated regret can be a powerful motivator for behavior change. When people anticipate feeling regret over a potential decision or outcome, it influences them to make choices that reduce the risk of experiencing regret.

• Anticipated regret was demonstrated to influence decisions in examples of people continually buying lottery tickets so they wouldn’t regret it if their numbers came up, and people in the Dutch Postcode Lottery not wanting to regret it if their postcode was a winner but they didn’t have a ticket.

• The passage then provides an example of how a company, the Bill & Melinda Gates Foundation, used incentives like monetary rewards and parking fees to encourage employees to use public transportation instead of driving to reduce traffic impacts.

• The author proposed using a “regret lottery” incentive at the foundation that would pay a prize only if an randomly selected employee name had not driven that day, creating potential regret for those whose name was drawn but had driven.

• Another company tested different incentive schemes in a study, finding that a $500 lottery with a regret component - only paying if the randomly selected name had not needed parking validation that day - was the most cost-effective at reducing parking compared to fixed cash rewards or a standard lottery.

• In summary, anticipated regret can be a powerful motivator for behavior change, as demonstrated in these examples where incentives leveraging potential regret were most effective at changing behaviors.

• The passage compares prosocial ( charity-focused) incentives to monetary incentives and when each type may be more effective.

• It finds that when rewards are small, prosocial incentives that give people a “warm glow” from contributing can be more motivating than monetary rewards, since people care more about contributing than the exact amount.

• However, when rewards are large, monetary incentives become more motivating since people are very responsive to large amounts of money. The “warm glow” effect is less influential for big rewards.

• This helps explain why volunteer fire departments can be so successful even without pay - people feel intrinsic motivation from helping their community.

• An experiment supported this, finding students exerted more effort for small rewards when they went to charity rather than themselves. But for large rewards, self-benefit was more motivating.

• Prosocial incentives that leverage the warm glow can be effective alternatives to traditional monetary incentives in some cases, like when used by Pret a Manger to motivate employees through team-building bonuses.

• Overall, prosocial incentives work best for small rewards as people care more about contributing, while monetary incentives may be better for larger rewards as money becomes a stronger motivator. Knowing when to use each type is important.

Awards can effectively signal a company’s values if they incentivize risk-taking, as seen with Tata’s “Dare to Try” award. The success of awards depends on both self-signaling and social signaling. Receiving an award validates one’s beliefs and behaviors to oneself and others.

Key aspects that influence signaling include the audience, scarcity, and who gives the award. Having a large audience amplifies social signaling value. Awards are more prestigious when they are scarce, as seen with Wikipedia’s varied awards. The giver’s status and alignment with the recipient’s values impacts how the award is perceived, as in Marlon Brando rejecting the Oscar.

While scarce awards motivate, awards that are too common lose their value. Awards work best when they recognize significant accomplishments and the giver-recipient relationship fosters identification with shared goals. Designing awards with careful consideration of these factors maximizes their ability to shape behaviors through effective signaling.

Here are the key points from the example:

• The Programme for International Student Assessment (PISA) is an international test given to 15-year-old students every 3 years to evaluate and compare education systems worldwide.

• The US consistently scores poorly on PISA rankings compared to other developed nations. This has been a concern for policymakers.

• In this example, a US student named Tyler takes the PISA test but has no incentive to try his best - the results won’t affect his grades, he won’t get his score, and no one he knows will see it.

• Without personal consequences or rewards, Tyler is apathetic about the test and doesn’t feel motivated to put in full effort.

• This illustrates how PISA results may not accurately reflect US student learning if test-taking incentive is lacking compared to other countries.

• Incentives are important to consider when using tests like PISA to diagnose problems - without proper motivation, results could misdiagnose the underlying issues in the education system.

The key takeaway is that incentives matter when using tests to evaluate performance. Lack of incentive for students can result in misleading diagnoses if tests are not accurately reflecting their true abilities due to lack of effort.

The passage discusses a study conducted by the author and other researchers to explore an alternative explanation for the US’s poor performance on the 2012 PISA test compared to Shanghai, China. They hypothesized that the test score differences may have been due to differences in effort exerted on the test, rather than actual ability differences.

To test this, they conducted an experiment where students in the US and Shanghai took a shortened version of the PISA with or without financial incentives. The control groups received no incentive to perform well, mimicking the real PISA. The treatment groups were given $25 up front and told they would lose $1 for every incorrect answer, incentivizing effort.

The results confirmed the hypothesis. Shanghai students’ scores did not change much with incentives since they were already trying hard. But US students’ scores rose significantly with incentives, showing their lack of effort on the unincentivized test was holding them back. This suggests that performance differences on standardized tests like PISA may be influenced by cultural differences in test-taking motivation as much as or more than actual ability differences.

The study demonstrates the value of using incentives experimentally to properly diagnose issues, rather than making assumptions. It questions the common interpretation that PISA scores solely reflect differences in national education quality or student ability.

• The assumption that test scores only reflect differences in students’ ability is rejected by the data. Tests can be influenced by many other factors beyond just innate ability.

• Public policy based solely on this assumption of tests accurately measuring innate ability could be wasteful. If tests are influenced by external factors, policies focusing only on ability may miss other important influences on student performance.

• The data suggests tests are a multidimensional measure influenced by many factors beyond just innate student ability. Public policy should take a holistic view and consider all possible influences on test performance rather than assuming tests solely reflect innate ability differences. A narrow focus on ability alone in policymaking could neglect other important issues and lead to ineffective or misguided policies.

• The passage discusses a “Pay to Quit” strategy that some companies like Zappos, Amazon, and Riot Games have implemented to better understand employee motivation and incentivize truth-telling.

• Under this strategy, companies offer financial bonuses (ranging from $2,000 to $25,000) for employees to quit their jobs voluntarily, no strings attached. The goal is to encourage employees to honestly assess if they truly want to stay or would rather take the money and leave.

• By making it financially valuable for dissatisfied employees to reveal their true preferences rather than stay silent, this strategy aims to more accurately diagnose motivational issues as the root cause of poor performance. It also provides an exit solution when employees are unmotivated to stay.

• Proponents argue it benefits both employees, who can leave happily with a bonus if unhappy, and companies, which are left with a more committed workforce that turned down the bonus offer.

• Examples are provided of companies like Zappos and Amazon that have implemented this strategy, with some evidence it may help select more engaged customer-focused employees and foster long-term goals.

• Overall it is presented as an unconventional but potentially effective way for managers to gain insights into employee motivation through incentivizing truthful revelation of preferences rather than reliance on self-reported measures.

• The company was considering a change that excited some employees but others didn’t want to deviate from the status quo. Simply asking employees their views could lead to biased responses.

• The company evaluates employees every five years. Asking if they’re happy would likely elicit a “yes” response even from unhappy employees planning to leave soon.

• Offering an exit bonus at the five-year evaluation could reveal employees’ true preferences. Unmotivated employees wanting to leave would accept the bonus, while motivated employees committed to staying would reject it.

• This “pay to quit” approach filters out unmotivated employees, leaving more motivated ones committed to long-term goals. Research shows employees who reject the bonus work harder and perform better.

• Rejecting a bonus also creates a sunk cost that employees want to justify through increased effort, commitment and performance to feel their choice was worthwhile. Field experiments show similar effects - employees who reject a bonus are more likely to engage in desired behaviors.

• In summary, a pay to quit offer can reveal an employee’s actual motivation level and commitment, improving employee quality over the long run through self-selection and incentivizing better performance from those who choose to stay.

• It is common for people to make New Year’s resolutions or health goals after a doctor’s visit but fail to follow through in maintaining the changed behavior over time. People tend to be overconfident in their ability to sustain motivation and change habits long-term.

• Research has found that many gym memberships are purchased in January but membership drops off sharply over subsequent months, indicating most people do not maintain their gym attendance goals.

• Even facing serious health risks like being prediabetic may not be enough motivation on its own to prompt sustained behavior change, as the example of John illustrates.

• Behavioral economists are exploring how incentives can be used to better motivate long-term habit formation and behavior change. Approaches include testing different incentive structures and combining incentives with other behavioral insights.

• Startups like Vizer are applying behavioral science by creating apps that use social incentives like food donations for meeting daily fitness goals, as well as more traditional rewards, to motivate exercise habit formation.

• Sustained behavior change is challenging but incentive design informed by behavioral science offers promise in helping people better achieve and maintain new behaviors and habits over the long run.

• Dylan and Sam have been developing their wellness app for 4 years and are becoming an important player in the wellness industry.

• The passage discusses how incentives can help promote long-term behavior change by addressing why people struggle to change behaviors they want to change, like exercising regularly. It’s not necessarily a “mistake” if people can’t achieve their goals.

• Incentives can help people start a new behavior which allows them to build up a “habitual stock” over time as the behavior becomes easier and more enjoyable. This increases the chances they will sustain the behavior even after incentives are removed.

• One study offered college students incentives to visit the gym. It found those who were incentivized continued visiting at higher rates for months after incentives ended, showing incentives can help create exercising habits.

• Follow up studies looked more at whether the effect lasts long-term or decays over time. The habit formation benefited declined over longer breaks like winter vacation, suggesting more is needed than just an initial incentive to achieve long-lasting change.

• Understanding how incentives interact with habit formation and motivation is key to using incentives to promote sustained behavior change in domains like health, productivity, and environment.

• A study found that people tended to overestimate how often they would continue exercising after an incentive program ended. They were partially naive about their own lack of self-control.

• Commitment devices can help people follow through on goals that are hard to maintain with willpower alone, like exercising regularly. An example is Odysseus tying himself to the mast to avoid the Sirens’ song.

• An experiment tested commitment devices for exercising by allowing people to pledge their own money toward a goal. This led to better habit formation and higher attendance rates after incentives ended, showing commitment devices can extend the impact of programs.

• Social effects also influence exercise habits. People were more likely to exercise if more of their friends received incentives. Exercising as part of a team, where each person’s incentives depended on the other, also increased attendance rates. Having an accountability partner can act as a commitment device.

• Routines help develop stable habits through repeated, automatic behaviors. While studies incentivized regular attendance, flexibility in routines may also be important for long-term adherence to exercise goals.

• Researchers from Harvard, Wharton and Google conducted a field experiment to test whether strict routine incentives or flexible incentives led to more persistent exercise among employees.

• Participants were randomly assigned to a control group with no incentives, a flexible incentive group where they got paid for exercising 30+ minutes anytime during the week, or a routine group where they had to exercise within a 2-hour window daily to get paid.

• Surprisingly, those with flexible incentives exercised more both during and after the incentives than those with routines, contrary to psychological theories that routines form stronger habits.

• For the fast-paced Google workplace, routines may have been too restrictive even for monetary incentives, disrupting planned exercise windows. However, routines could still be effective for habit formation in more stable schedules.

• In summary, flexible incentives led to more exercise in this context, but routines may work better in other environments - it depends on individual and workplace factors. Combining incentives with other habit-forming techniques could also prolong their effectiveness.

• The study randomly assigned pregnant mothers to either a contingent voucher group or a non-contingent voucher group.

• For the contingent group, voucher value increased based on verified smoking abstinence. Failures reset the value back to the start. This incentivized continuous abstinence.

• The non-contingent group received vouchers of constant value regardless of smoking behavior.

• The contingent voucher system was more effective, increasing 7-day abstinence rates to 37% at the end of pregnancy and 33% 12 weeks postpartum, compared to 9% and 0% for the non-contingent group.

• This shows that making incentives contingent on behavior, rather than unconditional, can help promote smoking cessation during and after pregnancy. The increasing value structure further encouraged sustained abstinence.

Here are some key points from the passage:

• John struggles to quit drinking beer and exercise more because the reward of beer is immediate while the health benefits of exercise are long-term.

• Temptation bundling is a method that bundles immediately gratifying “want” activities with beneficial “should” activities to overcome this timing issue.

• A study tested bundling audio novels (want) with exercise (should) using different conditions: control group got a gift card, full treatment group could only listen at the gym, intermediate group could listen anytime.

• The intermediate group increased gym attendance by 29% vs control, showing restricting enjoyment promotes the should activity.

• The full treatment group increased gym attendance by 51% vs control, showing bundling is most effective commitment device.

• Effects declined over time but 61% opted to pay for gym-only access, showing demand for commitment devices due to limited willpower.

To help John, some options are bundling beer drinking with exercise by only allowing it after the gym, or using temptation bundling more broadly like only allowing TV after completing chores/exercise. Commitment devices that bundle wants and shoulds can help overcome immediate gratification and promote long-term health goals.

The passage discusses using temptation bundling or incentivizing beneficial behaviors by bundling them with enjoyable activities. It describes how present bias and dynamic inconsistency make behavior change difficult, as people prefer immediate rewards and can change their mind about future choices.

To counter this, the passage recommends front-loading incentives so rewards are immediate. It also suggests lowering barriers to the beneficial behavior in the present. As an example, the passage describes a study where researchers gave university students free gym memberships to remove financial barriers to exercising. This was done to test if increased exercise through incentivization would improve academic performance by analyzing grades before and after. The goal was to establish a causal link between exercise and academics, rather than just an observed correlation. In summary, the passage discusses using temptation bundling and barrier removal as effective ways to leverage incentives and counterpresent bias to facilitate behavior change.

• The study gave 400 students free gym memberships (treatment group) while the rest did not receive incentives (control group). They measured gym attendance and academic performance.

• As predicted, the treatment group attended the gym more since the free membership removed a barrier to exercising.

• The goal was to see if increased exercise improves academics. They found those in the treatment group performed 0.15 standard deviations better on average in their grades.

• The effect was doubled for students who reported lower self-control previously. This suggests incentives can positively change lifestyles and ultimately academics.

• The findings provide causal evidence that exercise improves academic success and suggest policymakers should consider physical education funding carefully given its benefits. Cutting PE may impact students more than an extra hour of other classes.

• In general, incentives can be effective at changing behaviors by removing barriers like costs, distances, switching efforts, social stigma, etc. This allows people to overcome inertia and form new habits.

• The Maasai people of Kenya and Tanzania have traditionally engaged in lion killing as a rite of passage for young men and to protect their livestock from attacks.

• However, Kenya’s growing population and development has reduced natural habitat and the lion population, endangering lions. Lions are also important for tourism.

• Luca Belpietro founded an ecotourism lodge near Maasai land and the Maasai Wilderness Conservation Trust to help the community. He worked to change the Maasai tradition of lion killing by establishing incentives.

• The Trust employs over 300 Maasai members and provides income from ecotourism to make livestock protection a higher priority than lion killing. This demonstrates how incentives can potentially alter cultural practices by addressing economic needs and traditions.

• Samson Parashina is a Maasai man who Luca met when Samson was a spear-carrying warrior-in-training. Samson later worked at Luca’s lodge restaurant and was educated, becoming the manager of the lodge and president of the trust.

• The Maasai lion population was declining drastically due to conflict with herders, with over 100 lions killed by Maasai in one year.

• Luca and Samson created the Simba Project, an incentive scheme to discourage lion killing. It would compensate herders financially for lost livestock, but only if no lion was killed in retaliation. This changed the incentives for herders to no longer call warriors after an attack.

• However, there was a risk of insurance fraud - herders allowing sick livestock to be killed to claim compensation. To address this, the trust created “Verifying Officers” to investigate claims, similar to insurance adjusters. The story then follows Samson responding to a claim being investigated.

• In summary, the Simba Project used financial incentives to change Maasai practices harming lions, but had to address potential issues like fraud that could arise from its insurance-like compensation system.

• Traditionally, Maasai warriors prove their bravery through activities like circumcision ceremonies where they cannot show pain. Being a warrior is an important role and source of pride.

• Warriors are responsible for protecting the community and livestock from predators and enemies by killing lions and other threats. This serves as a rite of passage into manhood.

• The Simba Project aims to financially compensate elders for livestock losses, but warriors have no incentive to stop killing lions as this is integral to their identity and role.

• To address this, the project created a new group called the “Simba Scouts” comprised of experienced warriors. Their task is to protect lions rather than kill them, offering an alternative rite of passage and source of pride and purpose for warriors. This aims to get the critical support of warriors for the project to succeed in changing traditions.

• Female genital mutilation (FGM) is a persistent human rights issue among the Maasai tribe in Kenya, where the vast majority of women undergo circumcision between ages 12-15 as a rite of passage.

• FGM involves removal of part or all of the external female genitalia and causes severe physical and mental health consequences. It endangers lives during childbirth and prevents women from enjoying sexual intercourse.

• While seen as cultural tradition, FGM is a practice that should be stopped due to its harmful health impacts. Efforts through education and legal bans have not been very effective in changing the social norm.

• The creators of the successful Simba Project program to protect lions wanted to use the same approach of changing incentives and social norms to end FGM. Slow-moving education alone would not be sufficient and girls would continue suffering each year. An alternative program was needed to alter the social norm more rapidly.

• The team proposed using economic incentives to help end the practice of female genital mutilation (FGM) among the Maasai people in Kenya.

• Currently, social and economic incentives encourage the continuation of FGM. Girls who undergo FGM can find higher status husbands and their parents receive larger dowries.

• The team’s proposed intervention would use incentives to change this calculus. It would pay for girls’ high school tuition if they do not undergo FGM.

• This would create a strong economic incentive for parents not to subject their daughters to FGM, as it would allow daughters to get an education and career prospects while still having marriage opportunities.

• To test this, the team planned to conduct a randomized controlled trial with consenting girls age 11-14 across 22 schools. Schools would be randomly assigned to a control group with no incentives or a treatment group where uncut girls receive tuition aid.

• Potential issues like peer pressure and social norms were considered, and the large-scale intervention aimed to alleviate pressure while education would help girls resist even after the incentives. The goal was to change social norms over time.

• The first offer or asking price in a negotiation acts as an anchor that influences the other party’s perception of value.

• According to research by Tversky and Kahneman, people’s guesses in estimating unknown values are significantly influenced by initial arbitrary anchors, even when they know the anchor is irrelevant.

• Experts are also subject to anchoring effects. In one study, bankers’ estimates of future interest rates were influenced when an arbitrary lower anchor was provided before asking for their estimate.

• In the house negotiation scenario, the seller’s initial asking price will anchor the buyer Jennifer’s estimates of the house’s value. While she knows it’s a starting point for negotiation, she is likely to insufficiently adjust her view away from the anchor.

• By anchoring higher, the seller sets a framing that is advantageous for extracting a higher sale price through the negotiation process. The anchoring effect is an important behavioral principle for the seller to consider when determining their opening offer amount.

Here are the key points about anchoring and the contrast effect from the summary:

• Anchoring bias refers to how people rely too heavily on the first piece of information (the “anchor”) when making decisions. In negotiations, the initial asking price or offer can anchor the other party’s expectations.

• Research found that real estate agents’ property value assessments were unconsciously influenced by the listing price anchor, even though they insisted it did not affect their judgment.

• In negotiations, setting a high but reasonable first offer serves as an anchor for the other party’s estimates. It signals your expectations are high.

• The contrast effect refers to how people judge options relative to a reference point, rather than based on absolute values. Subsequent offers seem better by comparison to an initial high anchor/offer.

• Experiments show our perceptions are affected by contrast - like experiencing the same temperature water differently depending on what our hands were in previously.

• A real estate agent intentionally showed clients a below-average first house, knowing subsequent houses would seem better by contrast and lower client standards/expectations.

• Setting a high initial anchor allows all subsequent offers to be judged favorably relative to the anchor, through the contrast effect. This can influence satisfaction and make the other party more likely to accept a good but lower subsequent offer.

So in summary, anchoring and contrast effects are cognitive biases that negotiations can strategically leverage to one’s advantage through the initial offer or asking price.

• An experiment presented students with two job options at different magazines. Option A had a higher salary but other workers made more, while option B had a lower salary but other workers made less. More students chose option B when asked which job they’d be happier at, even though the salary was lower.

• This showed that relative salary, compared to coworkers, impacts satisfaction more than absolute salary alone. People care about fair treatment and comparisons.

• In a home negotiation, anchoring high and then making a concession can leverage the contrast effect to make the buyer happier. Asking for $875k and settling on $825k seems like a better deal than an immovable $800k ask.

• Psychological effects like anchoring, contrast, and the norm of reciprocity can be leveraged in negotiations to get a buyer to perceive higher value and quality in the offer. A high but negotiable asking price signals the house is worth more.

• Experiments show people rate experiences more positively when the price is higher, due to an association between price and quality. A higher negotiated price may give the buyer greater enjoyment and satisfaction.

• The norm of reciprocity means people feel obliged to return favors. A seller who negotiates in good faith and makes concessions can trigger this norm to get the buyer to make further concessions in return.

• Robert Cialdini argues in his book Influence that the norm of reciprocity can elicit favors even when an initial kindness is not genuine, but specifically created to induce a return favor. He gives the example of Hare Krishna devotees who give out flowers and then immediately ask for donations.

• Reciprocity can be leveraged in negotiations by starting with a high first offer to leave room for concessions. This anchors the other party and signals value and generosity when concessions are made. It encourages reciprocation from the other party.

• A first offer should be “just this side of crazy” - high enough to surprise but not so high that the other party walks away. This ensures all subsequent offers are compared to the anchor.

• The author’s son successfully negotiated $20 from the tooth fairy by surprising them with a high but reasonable request, capitalizing on reciprocity norms.

• What constitutes a reasonable first offer depends on context and culture. The strategy aims to get a counteroffer rather than an immediate acceptance or rejection.

• Lottery incentives for COVID vaccines showed initial success but the impact couldn’t be isolated without a control group. Backfire effects from incentives also need to be considered over the long run.

• Large lottery incentives like $1 million for getting vaccinated could backfire by signaling to some that the vaccines must be problematic if such a large payout is being offered. While it may boost rates initially, it could hurt uptake of future booster shots.

• People’s reactions to incentives fall into three categories - those who don’t need incentives, those who won’t get vaccinated no matter what, and those who can be swayed either way. Large lotteries target the third group but may send the wrong signal.

• Smaller incentives like dinner with the governor or free admission to state parks that emphasize reopening society send a better signal about the importance of vaccination.

• Incentives from local businesses thanking people for getting vaccinated to support reopening also send the right message.

• While incentives have mainly encouraged vaccination, some see mandates and “health passes” as overreach that impose beliefs, and there are legal and moral objections to consider as well just as there were for seatbelt laws. Overall it’s a complex issue with reasonable arguments on both sides.

• In the late 1980s, some resisted seatbelt laws by cutting belts out of cars or challenging laws in court on individual freedom grounds. They argued the government shouldn’t “tie up Americans” in seat belts.

• However, over time public service campaigns, legal enforcement, and reminders from cars themselves helped make seatbelt use routine. Now over 90% of Americans use seatbelts regularly.

• Vaccine mandates similarly send a strong signal because of strong challenges against them, just like with seatbelts. Changing seatbelt norms took decades but vaccines may be faster due to factors like:

• Biden urging vaccination to save lives and calling on states to incentivize with $100 payments.

• Biden also issued stricter policies for federal workers to get vaccinated or face testing/masking, recognizing incentives alone are not enough.

• Strong mandates signal how strongly the administration believes vaccines are important, like other examples where strong signals proved effective at changing behaviors, such as carbon taxes in Sweden and plastic bag fees in Israel.

• Clear and strong messaging around these policies helped make their objectives clear and strengthened the signaling effect to change public behaviors and priorities.

Here are summaries of the provided sources:

1. The article from the Washington Post discusses the complex interplay between gender, hair styles, tattoos, and self-signaling. It notes that styles seen as unconventional can signal nonconformity and creativity to some, but also laziness or lack of self-control to others.

2. The article from the Quarterly Journal of Economics presents an influential theory about “job market signaling.” It suggests people seek to signal their innate abilities and motivation to employers through educational achievements and other investments, since abilities are not directly observable. These signals help reduce uncertainty in hiring decisions.

Chapter 2 discusses how Toyota was able to win the hybrid car market by introducing the Prius. It notes the Prius became almost synonymous with hybrid vehicles after its launch in the late 1990s. This helped Toyota dominate initial sales of hybrid electric cars.

Chapter 3 discusses self-signaling and how consumption choices can signal aspects of identity. It references research on how giving to charities or paying artists can involve self-signaling motives. It also discusses blood donation and how signing up can affirm one’s view of themselves as altruistic. Overall it examines how market choices are often as much about affirming identity as obtaining a product or service.

Here are the key points from the summaries:

1. The DOJ filed an antitrust lawsuit against Bazaarvoice regarding its acquisition of PowerReviews, alleging the acquisition would substantially lessen competition in the market for digital product rating and review platforms.

2. Research found evidence that accelerating the vesting of stock options leads managers to focus more on short-term results and cut investment. This supports the view that equity-based incentives can distort managerial decisions.

3. Escrow is a legal process where a third party holds and distributes money/assets for two other transacting parties per their mutual instructions or contractual conditions. It helps facilitate transactions and ensure conditions are met.

4. Individual performance bonuses for things like goals/sacks in the NFL can incentivize individual success but also potentially cause tensions or encourage riskier/less team-oriented play if not carefully structured. Bonuses are generally confidential but some have been leaked or reported.

5. Introducing fines for behaviors like missing school/daycare can be counterproductive if people simply view the fine as a price rather than a deterrent. This relates to the concept that non-monetary incentives and social norms may drive behavior more than monetary penalties alone.

6. In the early 1900s, a colonial administrator in Vietnam offered cash rewards to citizens to kill rats with the aim of eradicating disease. However, it backfired as people began farming rats for the rewards, increasing rather than decreasing the rat population. Such unintended consequences illustrate the complexity of incentive design.

7. The unique cone-shaped stone huts called “trulli” in southern Italy’s Puglia region may have originated as a response to tax incentives favoring temporary over permanent structures. This shows how economic incentives can subtly shape cultures and traditions over generations.

Here is a summary of the story-of-alberobellos-trulli.html:

The story describes the unique stone dwellings known as trulli in the region of Puglia in southern Italy. Trulli are cone-shaped stone buildings with circular bases and pointed roofs. They are found mainly in the towns of Alberobello and Locorotondo.

The peculiar architecture of trulli is said to date back to the 15th century, when the residents of Alberobello built the trulli to avoid taxes from the local lord. The stone structures had no foundations and could be easily taken down, then rebuilt piece by piece. This allowed the residents to hide the evidence of their homes when tax inspectors came.

Over time, trulli became more permanent structures as taxes diminished. However, their distinctive shape endured as a symbol of the region. Trulli construction required great skill, without the use of mortar or reinforced concrete. Each stone was precisely cut to fit with its neighbors.

Today, trulli are mainly used as homes, shops, or attractions for tourists. The center of Alberobello contains one of the largest concentrations of trulli in the world, numbering over 1,500. It was designated a UNESCO World Heritage Site in 1996 due to the significance and uniqueness of trulli architecture. The structures remain an iconic symbol of traditional Pugliese rural culture and history.

Here are summaries of the key articles:

• Rothstein argues that international test results like PISA do not necessarily mean U.S. students have poor academic performance. Factors like effort level, curriculum differences, and test design need to be considered.

• Stevenson and Stigler’s book compares U.S., Japanese, and Chinese education systems. It finds the East Asian systems place more emphasis on math, effort, and teacher training/preparedness. This contributes to their high test scores.

• Hanushek and Woessmann analyze OECD data and find a strong positive correlation between countries’ cognitive skills test performance and economic growth rates. Higher skills are linked to greater productivity and innovation.

• Gneezy et al. conduct experiments finding that financial incentives for performance on standardized tests increase students’ effort levels and scores. This suggests U.S. scores may be lower due to relatively low effort levels rather than ability alone.

• Leubsdorf discusses this research, arguing it implies U.S. students do not try very hard on standardized international tests compared to some East Asian peers. Incentives could potentially boost U.S. relative performance.

Here is a summary of the key points from the article “The Mast: Evidence from a Commitment Savings Product in the Philippines,” Quarterly Journal of Economics 121, no. 2 (2006): 635–72:

• The study examines a commitment savings product called “Mast” introduced in the Philippines which allowed savers to deposit money which would be inaccessible for a pre-determined period (usually 6-12 months).

• It finds that users of Mast had higher savings amounts than non-users, suggesting commitment devices can help overcome present bias and boost savings.

• Mast users systematically deposited money over time into their accounts rather than lumping sums, indicating it helped savers transform illiquid weekly income into committed long-term savings.

• Withdrawal rates during the commitment period were very low at around 1%, showing savers were able to commit to the pre-set savings goal. However, savers did heavily dissave post-commitment, suggesting present bias returned once funds became available.

• Overall, the results provide evidence that simple commitment devices can be effective in promoting savings, especially among those with self-control problems and tendency towards present bias. The Mast product helped savers formalize savings goals and plans.

Here are summaries of the relevant articles:

1. This article summarizes a program in Connecticut where restaurants and bars offered free drinks to customers who showed proof of COVID-19 vaccination. The goal was to encourage vaccination using limited-time incentives at participating establishments.

2. This article discusses how Krispy Kreme offered customers a free glazed donut if they showed their COVID-19 vaccination card. This was another incentive program aimed at boosting vaccination rates using treats and convenience store pickup options.

3. This article weighs the arguments for and against vaccine mandates. While mandates may increase vaccination rates, the author argues they weaken trust and autonomy. Mandates could also disproportionately impact certain groups and jobs. Overall it’s a nuanced analysis of a complex issue with reasonable counterarguments on both sides.

4. This article discusses how in the 1960s-70s, Americans resisted seat belt laws in a similar way some resist masks and vaccines today. It draws parallels to the historical opposition to safety regulations that are now widely accepted.

5. This article summarizes President Biden’s call for states to provide $100 incentives for citizens to get vaccinated, as COVID-19 cases were rising due to the Delta variant. It reflected an escalation in incentive-based strategies to boost vaccination rates.

6. This book discusses “nudges” or choice architectures that influence behavior in a predictable way while maintaining freedom of choice. It’s a relevant framework and case studies for incentive design aimed at beneficial behavior change.

7. This is a Wikipedia article in Hebrew about plastic shopping bag regulations, suggesting policies aimed at reducing plastic bag use through opt-out defaults or fees rather than outright bans. It discusses behavioral approaches to environmental protection.

Here is a summary of the key points from the provided section:

• Honda introduced hybrid cars like the Civic Hybrid in the late 1990s/early 2000s which got better gas mileage than comparable gas-only cars through the use of electric motors. This helped establish Honda as an early leader in hybrid technology.

• Housing structures in Amsterdam include smaller apartments due to limits on space. Puglia, Italy has distinctive trulli structures which are stone buildings with conical roofs. The Window Tax in the UK led to the blocking in of windows.

• Incentives for reducing behaviors like smoking use a “Pay to Quit” strategy where smokers are paid for periods of abstention. Commitment contracts where money is forfeited for relapsing can also be used.

• Team incentives can encourage cooperation but individual incentives may promote competition and risk-taking more. Mixed signals about priorities can undermine goals.

• Performance-based pay is used in healthcare through pay-for-performance models but quantity-focused incentives could promote overtreatment. Quality is difficult to objectively measure.

• Social incentives through comparative feedback on behaviors like energy use can motivate changes. Prosocial incentives appeal to altruism rather than money.

• The PWYW (pay what you want) pricing model allows customers to pay any amount for a good or service, including nothing. This can increase access but may reduce revenues. It was used for CD sales by radiohead and books by author Mike Young.

• Recycling rates were higher in the Soviet Union compared to the West in the 1970s-80s due to bread distribution and glass factory policies that incentivized recycling over waste.

• Michael Spence’s signaling theory discusses how individuals use signals like education to convey unobservable traits to others. Tattoos can also act as credible signals of traits.

• Studies show team-based incentives in sports often improve performance more than individual incentives due to cooperation, but they can discourage exceptional individual talent and lead to free-riding issues. Proper incentive design is important.

• “Teaching to the test” is a criticism of standardized testing in education, where teaching is focused on test preparation rather than overall learning. However, international PISA test results also show issues with education quality in some places.

• This summarizes some of the key ideas discussed around pricing models, incentives, signaling, teamwork, education and other topics covered in the provided readings. Let me know if you need any part of the summary expanded on or explained further.