Why should I read this?
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- Why should I read this?
Incentives explain why we do what we do. Why are you looking at this website right now? What are you hoping to get out of this both on a short term and long term basis?
What if I told you that watching every video on this site would guarantee you an A+? You’d do it, right? Every action we take is motivated by conscious and unconscious incentives.
Real World Examples
Are illegal downloads making it so artists care less about their craft?
When musicians, actors, and studios cannot effectively protect what they have created, they earn less. Illegal downloads reduce the incentive to produce new content. Will the next John Lennon or Jay-Z work so hard? Will the next Dan Brown or J. K. Rowling hone their writing craft so diligently, if there is so much less money available upon them becoming successful?
Is the “I want it for free” culture causing the truly gifted to be less committed to their craft, thus depriving society of excellence? Maintaining the right rewards, or incentives, for hard work and innovation are essential for advancing our society.
Studying vs. Partying - happy now or happy later?
The choice to study for an exam the next day, as opposed to spending the evening with your friends, is based on the belief that doing well on the exam provides the greatest benefit.
You are incentivized to study because you know that an A in the course will raise your grade-point average and make you a more attractive candidate on the job market when finished with school.
Incentivizing Innovation: no better example than Google!
Incentives also play a vital role in innovation, the engine of economic growth. The company was founded by Sergey Brin and Larry Page, while they were attending Stanford University in the late 1990s.
Google’s success was based on developing a better search algorithm for web users. In 2004, the company went public. Today the company, which was founded less than twenty years ago in a garage in California, is worth more than 100 billion dollars and processes over one billion search requests every day.
Creating financial rewards for creativity
In the United States, the patent system and copyright laws guarantee inventors a specific period of time in which they can exclusively sell and market their work. This system encourages innovation by creating a powerful financial reward for creativity. Without patents and copyright laws inventors would bear all the costs, and almost none of the rewards, for their efforts.
Why would a firm invest in research and development or an artist create new music if their work could be immediately copied and sold by others? To reward the perspiration and inspiration required for innovation society needs patents and copyrights to create the right incentives for economic growth.
Name Your Price
Priceline has a form of haggling that allows users to get hotel rooms at a discount. Hotels negotiate with Priceline to fill unused rooms while still advertising the full price on their websites, Expedia, and other travel services.
This allows hotels to divide their customers into two groups: those who don’t want to be bothered with haggling, and those who value the savings enough to justify the time spent negotiating.