Common Sense Economics: What Everyone Needs to Know about Wealth and Prosperity
All of Economics rest on one simple principle: Changes in incentives influence human behavior in predictable ways. Both monetary and non-monetary factors influence incentives. If something becomes more costly, people will be less likely to choose it. Correspondingly, when the benefits derived from an option increase, people will be more likely to choose it. This simple idea, sometimes called the basic postulate of economics, is a powerful tool because it applies to almost everything that we do.
- How did changing (creating) incentives for Amanda to use the toilet change her behavior? Did incentives matter?
- How did Amanda figure out how to take advantage of the “system” to her benefit
- The video illustrates the power of incentives, but it also illustrates the difficulty of creating incentive schemes, which maintain desired results over time, when people do not really want to change their behavior. Discuss how this cautionary tale might be helpful in thinking about incentive programs we create in other situations, such as you might experience at school, home, work, or in society more generally.
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click here to download the Common Sense Economics materials.
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