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Keystone Principle #5 – Incentives produce “predictable” responses

Voluntary National Content Standards: #4, #8

Connection:

In an economic sense, incentives include both the positive and the negative enticements that cause us to change our choices.  Identifying these forces on a personal level helps students to become more self-aware and more able to recognize when incentives coincide with their own best interests.  There are three points of connection that will help your students integrate this concept into their daily life.

  • Incentives created by others.
    • Someone, either you or your parents, must work a certain number of hours to earn the money to buy you the video game you want.  Is it really worth that much work?  If you can find it on sale, that is an incentive that may now make it worthwhile.  How much work must now be exchanged for the video game?  Do you make that decision when you see it on sale (impulsively) or before you go shopping (rationally)?
    • Young people are frequently challenged by friends to join them in inappropriate behaviors (rule-breaking, cruelty to a third party) or risk losing the friendship.  Help students look beyond the extrinsic inducement in making the appropriate choice.  Help them to realize that falling in with someone else’s agenda is a good idea only if it accords with one’s own understanding of what is desirable.  It is an indication of maturity to respond positively to influences that help us grow, and to resist influences that appeal to our lesser selves.
  • Incentives we create to influence others.
    • Interpersonal relationships are important, and your students create and respond to all kinds of incentives to influence those friendships.  Are they healthy and mutually beneficial?  Are they manipulative?
    • Help your students to understand the difference between the short-term gratification of manipulating another person to get what we want from them, versus honest give and take that tries to understand the other person’s situation – it will bear more fruit in the long-run.
  • Unintended consequences.
    • The Keystone Economic Principle says “Incentives produce ‘predictable’ responses.”  Predictable is in quotation marks precisely because things are not always predictable.  Often, we learn more from hindsight.  For this reason, evaluating the predictive nature of incentives is an ongoing process.
    • Encourage students to look at their reaction to school rules.  Do they follow the rules or break the rules?  What are the consequences – both in terms of school sanctions for rule-breaking, and for themselves personally?  Did they encounter any surprises?
    • If students identify unintended consequences in either commerce or in their personal relationships, have them think through the process.  Were there any factors which they failed to consider that would have helped explain the result before the incentive was put in place?

Objectives

I. Understanding

  • “The Carrot” – the positive reward usually referred to as an incentive.
  • “The Stick” – the negative reward usually referred to as a disincentive.
  • Both the incentive and the disincentive affect our choices.
  • Incentives can be both monetary and non-monetary.
  • An incentive can produce a more predictable response when both parties share a similar value system.
  • In general, that which we subsidize or reward will increase and that which we tax or penalize will decrease.
  • If we desire a change in behavior we need to start with a change in the incentives.

II. Skills

Students will be able to:

  • identify incentives and disincentives
  • discuss how incentives and disincentives affect choices
  • express their personal values with regard to specific incentives/disincentives
  • predict responses based on incentives/disincentives

Activities

I. Concept Vocabulary

  • Incentive – Any reward or benefit, such as money, advantage, or good feeling that motivates people to do something.
  • Disincentive – A factor, often a monetary policy or a disadvantage, that discourages people from doing something.
  • Subsidize – to reward behavior that you want to see increase.
  • Penalize – to punish behavior that you want to see decrease.

II. Journals

Initial Prompt (to be done during the introduction of this monthly theme/principle):

Consider your choices in the following areas and write about what they say about what is important to you:

  • the clothes you wear
  • your participation at school
  • your grades at school
  • the food you eat
  • how you spend your money
  • how you spend your free time
  • the friends you choose

General assignment:

Choose one or two of the quotations and write a journal entry of at least half a page. For K-2nd grades, you may do this exercise as part of a discussion. Or, ask the students to draw an illustration of a quotation or the monthly theme/principle.

  1. Restate the idea in your own words
  2. Say whether or not you agree with the statement,
  3. Explain why you agree or disagree
  4. Discuss how you have seen it expressed in your own life.

III. Quotations:

Have students write their own quotations about incentives and exchange them to do the general journal assignment.

Lessons

Chinese Decisions (from the Powell Center Lessons)

Name That Fact! (from the Powell Center Lessons)

The Language of Knockout (from the Powell Center Lessons)

What are Incentives (an EconEdLink online lesson)

The Little Red Hen (an EconEdLink online lesson)

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