Excerpt

An email to me recalled the “exciting and stimulating times” that an old friend of mine had spent in the early 1950s as a staffer in the Executive Office of the President. “People worked long hours,” he told me, “and felt compensated by the sense of accomplishment, and . . . personal importance. Regularly a Friday afternoon meeting would go on until 8 or 9, when the chairman would suggest resuming Saturday morning. Nobody demurred. We all knew it was important, and we were important . . .” 

But then something changed. 

“What happened when the president issued an order that anyone who worked on Saturday was to receive overtime pay . . . ? Saturday meetings virtually disappeared.”

The emails were from Thomas Schelling, who half a century after he left the White House was awarded the Nobel Prize for convincing economists that their discipline should broaden its focus to include social interactions beyond markets. Things like segregated neighborhoods and business organizations and traffic jams and epidemics and information sharing on the internet.

The take-home message from Schelling’s story—that incentives sometimes backfire—is familiar to psychologists. In a 2008 study, kids less than two years old avidly helped an adult retrieve an out-of-reach object in the absence of rewards. But if they were rewarded with a toy for helping the adult, the helping rate fell off by 40 percent. (I review dozens of similar experiments done by economists in my recent book, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens).

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