The Hidden Side of Everything, Incentives and Researching Human Behavior (such as Cheating)

New York City’s crime rate began a steady and steep decline in 1991 that continued through the end of the decade.

Experts’ “Informational Advantages” Criminologists travel agents car salespeople & Saturn cars physicians & tonsillectomies/cesarean-section rates lawyers & do-it-yourself divorces, wills, etc. real-estate agents & the standard 6% commission: $300,000 home = $4,500 (or 1.5%) after splitting with the other buyer or seller and their agency; holding out for an additional $10,000 = ?

Fundamental Ideas 1.) incentives are the cornerstone of life 2.) conventional wisdom is often wrong 3.) dramatic effects often have distant, even subtle causes 4.) “experts” use their information advantages to serve their own agenda 5.) knowing what to measure, and how to measure it, makes the world a lot less complicated (think empirically)

Variable Pricing & Choice 7 p.m. = $8.50 Why not price these films differently based on demand? What are the potential risks and rewards?

Alternative Strategies & Choices H.O.V. lanes E-Z Pass reduced parking spots in business districts

Variable Pricing & Choice Hot chocolate $2.20 Cappuccino $2.55 Caffé Mocha $2.75 White Chocolate Mocha $3.20 20 oz Cappuccino $3.40 Translation Hot chocolate—no frills $2.20 Cappuccino—no frills $2.55 Mix them together—I feel special $2.75 Use different powder—I feel very special $3.20 Make it huge—I feel greedy $3.40 Source: Tim Harford, The Undercover Economist, p. 35.

Incentives, Variable Pricing & Context $3.25 half gallon $1.79 2-liter $2.53 box $3.23 half gallon $1.65 2-liter $2.61 box

Incentives: Day Care & Prostitution An incentive (negative or positive) is simply a means of urging people to do more of a good thing and less of a bad thing. Three basic flavors: (1) economic, (2) social, and (3) moral Economic: day care center in Haifa, Israel and fining tardy parents. After the $3 fine went into effect, the number of late child pickups promptly went…? Also, $3-per-pack “sin tax” for cigarettes. Social: banning of cigarettes in restaurants, prostitution busts http://www.chicagopolice.org/ps/list.aspx Moral: parental guilt over late child pick-ups at day care center

Moral/Social Incentives and Modern Life The Chicago Police Department in conjunction with the Mayor's office have now made prostitution solicitors' information available online. By using this website, you will be able to view public records on individuals who have been arrested for soliciting prostitutes or other related arrests. The following individuals were arrested and charged for either patronizing or soliciting for prostitution. It is not a comprehensive list of all individuals arrested by the Chicago Police Department for patronizing or soliciting for prostitution. The names, identities and citations appear here as they were provided to police officers in the field at the time of arrests.                        DOE/SMITH, CARLOS M/31 165XX BRENDEN LN. OAKPARK 1102 N CICERO AVE 2005/10/01 720 ILCS 5.0/11-15-A-1 DOE/SMITH, JOSE M/37 54XX S ROCKWELL ST CHICAGO 1102 N CICERO AVE 2005/10/02 720 ILCS 5.0/11-15-A-1 DOE/SMITH, JOHN M/54 28XX W 38TH PL CHICAGO 2500 S CALIFORNIA BLVD 2005/09/06 720 ILCS 5.0/11-15-A-1 DOE/SMITH, ALEX M/28 22XX MAGNOLIA CT WEST BUFFALO GROVE 1102 N CICERO AVE 2005/10/02 720 ILCS 5.0/11-15-A-1

Economic Incentives and Modern Life - Australian prison ships in the early 1900s - April 15, 1987 and the disappearance of of 7 million American children - frequent flyer miles (“loyalty programs”)

Incentives & Cheating Teachers cheating and “high stakes” testing: - How did the teachers cheat? - How was their cheating discovered? - How did administrators confirm their discovery? Do Sumo wrestlers cheat? - When? Why? 15 bouts per tournament and 7-7 wrestlers

Cheating and the “Bagel Man” Paul F.’s bagel business is essentially an “honor-system commerce scheme” Not paying for a bagel (or doughnut) is a form of white-collar crime, for which it is much harder to collect data than street crime. Why? In his own research business, payment rates averaged 95%

What the Bagel Man Saw Payment rate among all of his clients is approximately 87-89% 87% before 9/11 (89% after; 15% reduction in theft) What has Paul F. learned about honesty?

What the Bagel Man Saw Telecoms companies and law firms? Executives vs. administrative workers? Places where security clearance was required? Two great predictors of a company’s honesty?

What the Bagel Man Saw Relationship between payment rates and local unemployment rate? Effect of weather? High-cheating holidays vs. Low-cheating holidays? Paul F.’s sobering belief: “Honest people are honest, and cheaters will cheat regardless of the circumstance.” Based on his data, is that accurate? England’s toll-collector strike