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The mixed effect of incentives and the role of experience and regret

Published on December 29, 2016   24 min

Other Talks in the Series: Hot Topics

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Hi. My name is Ido Erev, I'm a Professor of Behavioral Science at Technion in Warwick Business School. I'll talk today about my research on the mixed effect of incentives and the role of experience and regret.
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The starting point of my research is the observation that study of the effect of economic incentive on human behavior reveals an apparent gap between successful inventions and interesting discoveries. Most successful inventions can be described as a method that reduces conflict under the assumption that people try to maximize expected return. The most important invention probably in the social sciences that will distinguish us between us and animal is the inventions of trading and market. Think, for example, of going back 100,000 years ago when two of our grandparents were going fishing and one was successful and the other was unsuccessful and assume for a minute that they were from different tribes. It is most likely that the less successful ones, the ones that didn't have any fish will try to steal some of the fish from the more successful one just like other animals do still today and they may get into a fight, and may be one will get wounded, and may be one can get killed. But then some time, we're not sure exactly when, people came up with the idea of trading. So if one was successful at fishing and the other one was unsuccessful, but still found some berries or something, so maybe the one that had the berries could offer the other person the berries in return of one fish and that really reduces the risk as a need to be aggressive. I'm not sure that it was a social scientist who came up with this idea, may be this was a discovery by mistake, but it really had a good effect, and it was effective because it maximized the return for both people. And much later, about 3,000 years ago, people came up with the idea of money that facilitated trade. And a little bit earlier, people came up with the idea of law and enforcement also as a method to reduce the risks that people would be aggressive to reduce risk of violence, and more recently people come up with the idea like banks and recently idea like Uber and GetTaxi method that improve coordination between passengers and drivers. As I said, all these inventions can be described as a method that reduces conflict under assumption that we people want to do as the best for themselves, that is, maximize expected return.
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The mixed effect of incentives and the role of experience and regret

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