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Change Incentives, Not Minds

May 12, 2010

As I’ve written elsewhere, in the ancestral environment, conversation was common and technology was almost non-existent. Therefore the way to change people’s actions was to talk to them and to convince them. The tribe was likely governed by consensus, and so the way to change tribal policies was through politicking.

In the huge modern world, however, societies have millions of people who interact in complex and highly structured ways using a variety of technologies. The benefits of direct persuasion are lower, because each of us can only persuade a small fraction of society. And the benefits of changing incentives (often through technology) are much larger, because incentives reach everyone, and we each operate in a far more complex web of incentives than before. This is not to say that persuasion is useless. Ayn Rand and Milton Friedman, for example, have had a major persuading impact. But they are the exception, not the rule.

With this framework in mind, let me relate one frustrating incident and one inspiring. First, the frustrating one, which was the recent EconTalk with Don Boudreaux on Public Choice. Now, you’d think that a public choice EconTalk would take the position that there are systemic flaws in our current form of government and so we need to find ways to improve our systems to remove the flaws.

Instead, Boudreaux’s position, as far as I could tell, was “Well, there are systemic flaws in democracy…so let’s educate people about them”. It’s a complete non sequitur, which I found very frustrating, because someone who understands public choice ought to be able to see the glaring flaw in this strategy. It’s like saying: “In a democracy, voters are rationally ignorant…so let’s educate voters about rational ignorance to fix it.”, or “In a democracy, concentrated interests with lower transaction costs tend to win in the political marketplace, so let’s teach people this to fix it.” I heard no mention of changing the rules so as to change these incentives. Incentives are like the laws of physics – they work whether or not you believe about them, and whether or not you know about them.

For example, discussing earmarks and pork-barrel politics:

Don Boudreaux: “And the only way they’re going to be prevented, or have any hope for preventing those activities, is if people more widely understand what the true nature of those activities are”

Russ Roberts: “And one of the ways to reduce, in my opinion, to reduce those kind of opportunities, the people who exploit those opportunities is shame. Shame is an under-appreciated social force.”

Can you imagine an economist saying that instead of increasing the price of water in a drought (change incentives), we should educate people about how their water is underpriced and tell them it’s shameful to waste it? That’s the argument that Russ Roberts is making here – shame people into not doing things they have incentives to do, rather than changing the incentives. And Boudreaux argues that education is the answer:

Boudreaux: Because the popular mind so celebrates democracy and has what I’m quite sure is a mistaken notion, a far too romantic view of democracy’s workability, it’s incumbent upon us, again, to show that democracy – or government in general – democracy in particular – has certain flaws that most people are unaware of, and being made more aware of those flaws is important for good public policy analysis.

This would make perfect sense if the “certain flaws” in democracy were “democracy produces bad policy because people aren’t well-informed enough about public choice theory”. But while public choice theorists are saying the answer is teaching public choice theory to the public, public choice theory doesn’t say anything of the kind! Instead, it shows how high coordination costs and low personal benefit lead to voters failing to protect their own broad interests. I’m shocked, frankly, at the size of this blind spot. Public choice is about incentives, education does not change those incentives, and we are not going to get better government unless we get better incentives.

Later, Boudreaux explains how he likes the Constitution of 1787 because he wants to see government restricted. To like the Constitution while liking limited government is rather akin to someone who wants to see alcohol disappear liking the 18th Amendment. Prohibition’s stated intention was to eliminate alcohol use, but it clearly and dramatically failed at this. The Constitution’s stated intention was to restrict government, but it clearly and dramatically failed at this. We can’t simply wish for things to succeed at their stated intentions – if history shows some method didn’t work, then those who support it’s goals should now be *against* the method – and for trying something else. Unless they have a damn good reason why things will be different this time – and I haven’t heard anyone put forth a reason why the Constitution will work better in 2010 than 1787, let alone a good reason.

(I apologize in advance if Boudreaux & Roberts came around to a more reasonable position later in the podcast – I found it so frustrating that I turned it off after 20min to lower my blood pressure).

Now, let me give you an example of a more realistic strategy. Last weekend, I met Greg Lukianoff, president of FIRE, the campus free speech organization that challenges unconstitutional speech codes, and he told me about a very exciting strategy they are pursuing. One of the reasons why universities are so anti-free speech is that the politically correct activists and the lawyers (worried about lawsuits for hate speech or whatever) are on the same side, telling administrators to crack down on anything potentially offensive.

Right now, the administrators have “qualified immunity” against liability for their censorship, as they are acting in good faith, not knowing that these speech codes are unconstitutional. However, since almost every speech code challenged in court has been struck down, it is not actually reasonable or in good faith for administrators to create or enforce these policies. At least, if they understand the legal landscape. Which is why FIRE has sent a detailed explanation of the unconstitutionality of these speech codes by certified mail to 300 schools. Now the administrators are provably informed, which removes their immunity and renders them personally liable for their unconstitutional actions. Thus dramatically changing their incentives. Now that’s fighting for freedom with the power of economics!


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15 Comments leave one →
  1. May 12, 2010 9:58 pm

    The Constitution’s stated intention was to restrict government, but it clearly and dramatically failed at this.

    Compared to what alternative?

  2. May 13, 2010 1:50 am

    I’m shocked, frankly, at the size of this blind spot.

    Indeed. This is a textbook case of Crimestop.

  3. May 13, 2010 2:55 am

    Patri, as a fellow anarchist, I agree with you that trying to solve the problems of democracy and State with democracy and State is a silly idea. However, I can’t think of any way in which an incentives scheme wouldn’t fall to a similar fate. As an example, informing the admins and making them liable may work in the short term, but they are exactly the type of small concentrated interest that can get laws passed to avoid liability in the future. Or am I wrong? Changing the incentives without changing minds is essentially what social engineers do and it’s only a matter of time before some crafty person figures out a way around it.

    Seasteading has promise because it offers an alternative and an experiment to serve as an example at the same time. But that at the same time gives governments to such Seasteads down.

    I really think the two have to be in unison. The incentives have to be attached to the minds. Changing the structure changes the way the vine grows, but the structure is primarily a product of the mind.

  4. May 13, 2010 7:21 am

    I take your point, and I like Lukianoff’s approach of finding a low-cost method to produce a large incentive shift. Leaving that sort of thing to the opposition is a recipe for defeat – I’ll be interested to see how this counter-move plays out. (In response to Chris George’s point: yes, but it will cost the admins to make such a play. There are no permanent solutions on either side.)

    However, shifting preferences is also an incentive-change at the individual level – and persuasion can be a low-cost way of achieving it. I think the reason ‘education’ and ‘inculcating shame’ are usually so ineffectual is because they follow historical authoritarian habits of communication from on high, and therefore disregard meta-incentives. That is, the targeted individuals have no incentive to shift their preference in the direction desired. Most people don’t want to find new things to worry about!

    I predict that libertarian persuasive attempts will shift personal incentives – and thereby, indirectly, institutional ones – just to the extent that the incentive-change they sell actually makes people feel better about doing the things they want to do. Shame will fail if it doesn’t entail at least equivalent levels of pride and triumph in the other direction. Education will fail where it doesn’t entail fun – in its particular target audience – to counterbalance the hassle of swotting.

    That circumscribes the extent to which incentive-changing through mind-changing is feasible, but surely leaves plenty of possibilities open.

  5. May 14, 2010 12:00 am

    Splendid, Patri.

    I agree with Chris George that there is still a role for education/persuasion in conjunction with changed incentives.

    But we all need a coherent theory of exactly when, where, and how education/persuasion is likely to be effective and when it is not likely to be effective, and your analogies here are compelling examples of ways in which education/persuasion is not likely to succeed.

  6. Jeffrey permalink
    May 14, 2010 3:57 am

    Excellent Patri,

  7. May 14, 2010 11:53 pm

    Great post, I listened to the podcast and had a similiar feeling.
    We can eventually make Democracy fractionally better by changing a few rules on the voting process, but we’ll only have great changes in the system if the logic of it also changes.

  8. Stephen permalink
    May 21, 2010 3:21 pm

    Oh, now that’s pretty funny. You spend a big part of the article arguing against education as a means of change… indeed, we must change the incentives. Yet, at the end, you write positively about education being used as a means of change.

    “Which is why FIRE has sent a detailed explanation of the unconstitutionality of these speech codes by certified mail to 300 schools. Now the administrators are provably informed, which removes their immunity and renders them personally liable for their unconstitutional actions.”

    Sounds like education to me. Not so sure you’ve got clarity on this subject, sir. :)

  9. May 22, 2010 1:37 pm

    Ah, you failed to notice the incentives being faced by public choice theorists themselves! They want their ideas to be heard, and so bring fame to themselves. This would naturally favor a strategy of changing minds, rather than working with incentives.

  10. May 31, 2010 4:22 pm

    Stephen, you’re confusing the technique with the purpose. FIRE doesn’t really care if the administrators throw the letter away without looking at it — the point is to inform them in law rather than in fact. The true message is only “you won’t get away with it next time.”

    How effective can an incentive be if the target is not aware of it?

  11. December 7, 2010 10:12 pm

    Well I really enjoyed reading it. This subject offered by you is very useful for proper planning.


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