Incentives Theme Analysis

At the core of Freakonomics is the concept of incentives. The concept of incentives is a way of explaining why human beings do things. In general, humans behave a certain way because they either perceive that behavior as offering a reward of some kind—a positive incentive, or “carrot”—or they avoid certain behaviors because those behaviors seem to lead to a punishment—a negative incentive, or “stick.” Intuitively, we all understand how incentives work: people work harder at their jobs if they’re offered the incentive of a higher salary; people may avoid eating certain foods if the foods offer a strong negative incentive of unhealthiness. Even so, Levitt and Dubner’s model of incentives can often be somewhat counterintuitive, and paints a uniquely balanced picture of human behavior.

Levitt and Dubner list three general categories for incentives (each of which could be positive or negative, in the manner described above). First, and perhaps most obviously, there are economic incentives; material incentives, often in the form of money or property. For example, if the government passes a law fining people for walking on the grass, then the negative economic incentive of the fine will deter people from walking on the grass. There are also social incentives; incentives based on human beings’ desire to be accepted and liked by other people. People are more likely to cheat on exams and shoplift when they’re alone, because if they were with their friends, they’d face the negative social incentive of being judged and scolded. Finally, there are moral incentives, based on people’s desire to “do the right thing.” In part, the reason that more people don’t kill and steal is the positive moral incentive of being “good” and feeling good about one’s behavior. This model of morality can be challenging, though, because in many religions and moral traditions, good behavior and self-interest are mutually exclusive. Economists, on the other hand, argue that people behave morally because they’re getting some “thing” in return for their behavior: the satisfaction of having done right. Freakonomics shows how the three incentives can be used to explain almost any kind of human behavior. If there is any measurable change in human behavior—a crime wave, a decrease in abortions, a spike in movie ticket sales, etc.—this change must be the result of a change in one of the three incentives.

Freakonomics does not address the question of which one of the three incentives plays the biggest role in influencing behavior, suggesting that Levitt and Dubner take a balanced view of human nature. In many of the book’s case studies, economic incentives seem to play the most important role: humans will choose whatever option yields the greatest material benefits. However, there are also many cases in which humans will ignore economic motives in order to impress other people or follow their own consciences. So in different cases, humans will behave selfishly, morally, or socially, or some combination of these. Ultimately, Freakonomics (and economics) defines human beings according to the things they desire and fear—material, social, and moral rewards and punishments. Human nature, one could argue, is a combination of these three competing desires, no single one of which is the most powerful in every case.

There are some obvious problems with the incentive model of human behavior, many of which are discussed in the following four themes. Incentives can be a reductive, overly simplistic way of talking about human nature, and many thinkers would argue that the three categories of incentives Levitt and Dubner propose overlap to a significant degree. Furthermore, while incentives can explain how a large group of people will behave, they can’t always describe what individual human beings will do (as the authors acknowledge in the Epilogue). Incentives can be very useful for studying and interpreting human behavior, but it’s important to recognize their limitations—and thus the limitations of economics itself.