• “The Carrot” – the positive reward usually referred to as an incentive.
• “The Stick” – the negative reward usually referred to as a disincentive.
• Both the incentive and the disincentive affect our choices.
• Incentives can be both monetary and non-monetary.
• An incentive can produce a more predictable response when both parties share a similar value system.
• In general, that which we subsidize or reward will increase and that which we tax or penalize will decrease.
• If we desire a change in behavior we can start with a change in the incentives.
• Accurately matching the incentive to the desired change can be tricky. We sometimes think we are rewarding one thing, only to find that we’ve rewarded something quite different. Sometimes it is only with hindsight that the “predictability” becomes obvious! Price controls on gasoline in the 1970s attempted to keep a lid on prices, but these controls also created severe shortages and long gas lines.