Economics is often the study of incentives. People act based on the incentives faced. These actions can be often quantified in simple basic economic classes through a discussion of price demand, yet prices may not be the sole motivation. Human behavior is more complex, and economist have now determined that extracting the correct incentives and motivations is much harder than often thought. The book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life by Uri Gneezy and John List provides a very readable introduction to the current trends in microeconomics which focus on field work to measure incentives for behavior in regular behavior. The authors talk about their long-term research agenda to tease out incentives for practical problems that have important applications.
What has been a significant trend over the last two decades is a pivot to field work that sets up controlled experiments on what incents behavior, or what can be used to motivate behavior. How do we get donors to increase giving? How do we get students to learn? How do price products to increase sales? Gneezy and List find that what may seem like to obvious answer is not often correct. Motivations and incentives are complex and often need to be measured through careful experimentation between a test group and a control group.
This work becomes very interesting when tied to finance. What causes investors to buy and sell stocks? The simple answer is to make a return on investment, but what information or packaging of information works to cause investors to engage and act. I don't think we often know the answer. We see herding behavior. There are behavioral biases. Some news cause reactions while other news which may seem important later are greeted with a yawn. The motives of investors are still a mystery and require further deep study. The incentives for financial decisions is more than just saying that investors want to make money.
No comments:
Post a Comment