When Money Is Not the Best Incentive

In WSJ’s “Ask Ariely,” a farmer wonders what to do about the “pick your own blueberry” customers who nibble as they fill their paid-for containers. Behavioral economist Dan Ariely says not to charge them for the blueberries they consume because then they will eat more. Instead, he suggests, create an entrance fee.

Although it appeared quite different, Israeli day-care centers had a similar problem.

This is the story…

The Fine

Our story begins at 10 private Israeli day-care centers. Because some parents were picking up their children after dismissal time, two economists suggested a fine at six of the centers. (The other four became their control group.) The amount was called small but not insignificant. It was based on per-child lateness.

The Backfire

Surprisingly, the number of latecomers more than doubled after the fine was announced. And even when it was eliminated, the late pickups continued.

Graphed, the results are dramatic. The fine was imposed from weeks 4-17:

Day-care centers elsewhere have experienced the same phenomenon. One parent said a $2 a minute penalty made her feel better about a delay. A group in Toronto said they now use a fine as revenue that pays for teacher overtime. You can see why. Unless it is unusually high, a fine is not a deterrent. It can though make everyone feel good.

Our Bottom Line: Unintended Consequences

An economist would tell us that the cost of a decision is not necessarily money. It can also be whatever we had to sacrifice.

Initially at the day-care centers, there was no clear cost for a late pickup. Instead, some parents could have believed that the “sacrifice” was what the teachers experienced when they stayed late. For others, it could have been the mental anguish they felt for taking advantage of the situation. Once they had a fine though, the cost became clear. The money commodified a late pickup. We could even say that the fine was a switch that turned off their moral behavior. And, when eliminated, it still made parents feel that lateness was an okay “commodity.”

You can see why that farmer better not charge for nibbling blueberries.

To read more about the day-care experiment, do take a look at this paper by economists Uri Gneezy and Aldo Rustichini. From there, this article adds to the facts as does this Freakonomics episode.

This post was slightly edited after publication.