Incentives and Behavior Change-Put Your Money to Work
Uri Gneezy, UC San Diego
Why don’t we exercise?
(or adopt other good habits?)
– Obese 55 YO man,
pre-diabetic
– A 19 YO woman who
smokes
“What fits your busy schedule better,
exercising one hour a day or being
dead 24 hours a day?”
– A 46 YO professor at
UC San Diego who…
The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives

The Problem: two Islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives
The First Island is New Ireland
Island of the Bismarck
Archipelago, Papua New
Guinea, southwestern
Pacific Ocean
“The people are warm and
friendly and would like to
invite you into their
communities and their
homes to experience their
tropical island ways.”
Most people are farmers,
growing sweet potato, taro,
and cassava. The average
annual per capita income at
US$289.
The Second Island is Manhattan
Island of Manhattan in New
York State. It is about 22.7
square miles and is
bordered by the Hudson
River and the East River
“The people are warm and friendly and would like to
invite you into their communities and their homes”
“Most people are farmers, growing sweet potato,
taro, and cassava. The average annual per capita
income at US$289.”
Classical Economics studies how
Mr. Spock makes decisions
Rational &
Logical
Selfinterested &
profit
maximization
Individual
Choices
Behavioral Economics studies how
real people make decisions
Individual
Choices
Irrational
Imperfect
self-control &
care about
others

The Problem: two Islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives
Medicare Rewards Program
• Incentivizes members to become healthier by
receiving preventive screenings and tests
throughout the year
–
–
–
–
–
–
–
Hepatitis B Vaccination
Cancer Screening
Flu Shot
LDL Cholesterol
Prostate Screening
Routine physical
….
Change in 2012: Bundling incentives
• In 2010 and 2011: $10 gift card per activity,
up to $50 a year
• In 2012, we introduced a threshold: $50 gift
card if completed five events or more;
nothing otherwise
Change in 2012: Bundling incentives
• N=3,678,006
• Over 18 million activities
% change
Percentage Change in qualifying events
(2012/2011-1)*100
• 7.6% less members completed one activity
• 10.5% more members completed five activities
• Overall average activities per member went
up by 2.7%
• Direct incentives cost 2011:
$41 million
• Direct incentives cost 2012:
$16 million
• Saved:
$25 million

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives
Sweepstakes
• Five treatments
– 40
prizes of $100
–8
Prizes of $500
–4
prizes of $1000
–2
prizes of $2000
– A control, no prize group
Return
rate
$
Cost of incentives ignoring mailing costs)
Total cost (incentives and mailing costs)
$
60
Total cost per returned
55
50
45
40
35
30
2/$2000
4/$1000
8/$500
Treatment
40/$100
Control
What payment method people prefer?
• John List and I were looking for a book title
• Used Freakonomics blog to solicit titles, and
then offered $1,000 for people who vote for
the winning title
• Then asked them how they prefer the
lottery to work
What payment method people prefer?
“Please indicate which of the following five award
options you prefer that we use in case you succeed”
• People prefer lotteries, but are split on the
P X question
• Do people know what they want?

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives
Paying employees not to drive
Lotteries with regret
Treatments
Control
$5
Lottery/$150
prize
Lottery/$150
prize, with
regret
Fraction of people who don’t use car
Fraction of people who don’t use car
$5
Lottery
Regret
Additional no cars relative to control
31
56
78
Cost per no car
$16
$9
$6
Lotteries with regret – main study
– Lottery:
• Names added each time a person comes
without a car
• At the end of the week one chosen randomly
• $500 prize
– Regret
• Names added daily-positive or negative
• At the end of the week one chosen randomly
• If positive, get $500. Otherwise, new name
Lotteries with regret – main study
• Three treatments: control, lottery, regret
• 10 groups of 60 participants per treatment
• Each group for one week
Lottery
Regret
Additional no cars relative to control
39
62
Cost per no car
$13
$8

The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives






The Problem: two islands
Incentives and Habits
Money for Nothing
Lotteries
Lotteries with Regret
Social Incentives