DAYCARE / KINDERKRIPPE EXAMPLE FREAKONOMICS

INCENTIVES A thing that motivates or encourages someone to do something Work hard at school because… Most powerful incentive in economics is… MONEY!! Or is it…?

DAYCARE Centres Israeli daycare centre in Haifa. Closes at 16.00. Most parents picked up their children on time. A few were always late. To solve this lateness problem a fine was introduced – parents pay if they are late (a financial incentive to be on time) What happened?

WHAT HAPPENED…? The number of parents turning up late increased. WHY? Before if you were late you felt guilty – the staff had to wait, you had to apologise. Now paying the late fine meant avoiding the guilt. The opposite effect was achieved.

STUDYING ECONOMICS Looks at how people behave with regards to money, choices, buying, working. Assumes people always behave rationally. But other factors apart from money affect how people behave. You might pay more for something because… - you like the person who works in that shop. - you can’t be bothered walking down the road. - you want it today not tomorrow. - its from a local shop not a big chain store. ALL OF THESE REASONS ARE ECONOMICALLY IRRATIONAL!!!!