Tim Harford, who has written the successful book The Undercover Economist, has just discovered these issues and writes in the FT:
Let me start with the elder Miss Harford, who this week demonstrated that she is well capable of controlling her bodily functions. She peed on the floor five times in quick succession in an attempt to divert her mother from feeding the younger Miss Harford.
Fine. She knows how to use the potty, so all that is now required is the right incentive. Chocolate coins turn out to be the sort of currency a two-year-old understands. Successful use of the potty earns such a coin. It works, and is money well spent.
Yet two days into the contract, problems are emerging. What is “successful use of the potty”? She doesn’t always make it there in time. But at this early stage, we choose to accentuate (and reward) the positive. In a month’s time I will be less impressed, but can we really move the goalposts then?
Even straightforward incentives can be manipulated. The great pole vaulter, Sergei Bubka, repeatedly broke the world record by a centimetre - and earned a cash bonus every time. I have visions of the near future in which Miss Harford empties her bladder one drop at a time in order to scoop bagfuls of chocolate coins.
As we are discovering, apparently black-and-white matters of performance can quickly become shades of grey. It is much more tempting to resort to discretion: if we’re happy with Miss Harford’s performance, chocolate coins will be forthcoming.
This sounds a bit like your boss’s vague promise to review your pay some time the year after next. Employees know that bosses are lying weasels and wisely ignore such empty words. Daughters know that parents are lying weasels too, which is why we must keep our incentive payments as unambiguous as possible.
Suffice it to say, Tim Harford's worries are likely to become reality and so the game for him is truely afoot.
