There are lots of transactions that we're either prohibited from making (selling kidneys), or that are strictly regulated by statute (parental surrogacy). Naturally, these rules are hotly debated, especially among economists, who generally assume that markets of informed buyers and sellers produce outcomes that make everyone better off.
In a Job Market paper, Stanford's Sandro Ambuehl describes a series of experiments that investigated the way in which incentives affect our ability to predict whether something is the best course of action for us. Specifically, Ambuehl set out to convince people to eat raw, whole insects, and compared how they rationalized their actions in the presence and absence of cash rewards.
It may not surprise you to discover that people who've been promised a lot of money to do something are likely to ignore or discount evidence that they won't like that course of action.
Subjects in the treatment group choose to watch one of two videos
about insect-eating, one highlighting the upsides, the other emphasizing the downsides. Subjects in
the control group cannot access any such information. I observe the fraction of subjects who are
willing to eat the insect for the incentive offered. The experiment yields three main results.
First, incentives increase participation in either group, but significantly more so in the treatment
group. Hence, as the model predicts, information gathering amplifies the effect of incentives on uptake.
A corroborating finding is that subjects offered the high incentive significantly more often chose the
video emphasizing the upsides of eating insects than those offered the low incentive.
Second, when offered the high incentive, subjects in the video treatment persuade themselves that
eating insects is less aversive than they would otherwise have thought. To show this, I elicit the
least amount of money for which a subject is willing to eat insects (her willingness-to-accept, WTA).
Incentives significantly decrease WTA in the treatment condition compared to subjects in the control
condition, and thus make them more willing to eat insects at any price when the video option is
Third, subjects do not predict the self-persuasion effect in others, in spite of material incentives
for accurate predictions. Hence, they seem unaware of it. This finding calls into question whether the
effects of incentives result from rational information processing.5
An Offer You Can't Refuse?
Incentives Change How We Think [Sandro Ambuehl/Stanford University]
(via Marginal Revolution)
(Image: Kim eating bugs, Ian Armstrong, CC-BY-SA)