Chapter 1: Schoolteachers and Sumo Wrestlers

The first chapter of the book examines various occurrences that we would otherwise overlook or take at face value and explains the effect incentives have on the people involved. It was interesting to see how human behavior could be explained in economic terms; how we all respond to moral, social, and economic incentives, both positive and negative.

I particularly found the economic study on the Israeli child daycare interesting because it demonstrated the effect of replacing one form of incentive with another. When an additional fee was charged to parents who were late in picking up their children the opposite of the intended effect occurred, the number of late pick-ups rose in that month. The reason? Before the penalty, parents faced embarrassment of picking up their children late. After the penalty was implemented they could buy off their guilt for picking up the children late. A social incentive was replaced by an economic one.

Incentives are effective means of controlling behavior. However, as the book explains, they can induce the person targeted by the incentive to engage in unfavorable behavior - cheating. Statistical evidence presented proved that teachers artificially boosted the scores of their students in high-stakes testing and that sumo wrestlers violated the honored tradition of the revered sport by conniving with each other to throw matches. The authors argue that when the reward of the incentive is outweighed by the risk of getting caught cheating to achieve the reward, or if negative incentives resulting to the cheater are not in place, cheating will persist in any situation. No matter how clever your incentive scheme is, there will always be people who try to beat the system.

As future managers, this knowledge of incentives can be extremely useful to us in creating ways to lead our employees and control their behavior, whether it be to raise efficiency, curtail insubordination, or improve quality. Incentive systems are extremely useful, our entire society is based on incentives in the form of laws, free market, and capitalism. But it is important to mind how incentive systems are never full-proof, and there will always be those persons who will try to undermine them.