Moral Incentive Examples

Chapter 1

1. Briefly describe what we mean by the word “incentive” as it is used in economic analysis. Give examples to illustrate your answer.

An incentive is a mean that urges people to do more of a good thing and less of a bad thing. As described in Freakonomics, “an incentive is a bullet, a lever, a key: an often tiny object with astonishing power to change a situation. An example could be getting a new bike as a result of getting good grades. A negative incentive could be fines to people who speed or litter to keep them from doing so in the future.

2. How does a moral incentive differ from an economic incentive?

A moral incentive differs from an economic incentive because a moral incentive appeals to one’s inner voice and it is a

What does the exposure of secret or hard-to-find information do to the institution that had maintained that informational advantage? Give an example of where this has occurred in the past few years.

Once secret information is exposed and made public, the informational advantage of the institution is weakened which makes the institution less powerful and the institution loses its significance and value towards their community which leads them to lose their influence. The book talks about an example of what happened to the price of term life insurance as the prices offered by different companies were available on the Internet. This resulted the advantage that the individual firms had relative to the potential customer to disappear, thus causing prices to fall a large amount. (Levitt and Dubner 59)

6. Short of outright lying, how can an ordinary person abuse information? Give an example.

An ordinary person can abuse information by either retaining some or all of the information or by editing the information. An example could be how people describe themselves during their job interview, withholding some of the information and making them seem perfect for the job. Another example could be how people overemphasize their qualities on dating websites, making them sound better than who they really are. Similarly, real estate agents use diction such as “gourmet” or “maple”, to make a house seem more appealing, by using physical

In constructing the model of supply and demand and the model of perfect competition, it is assumed that buyers and sellers have perfect information. What happens to the outcome in a market, compared to the competitively determined outcome, when this assumption no longer holds?

The outcome in the market decreases when the assumption that buyers and sellers have perfect information no longer holds. For example when people are selling a home they fear that they might be asking too much of a price for their house and may not be able to sell it at all. As a result they may lower the price so much that the house loses its worth, again resulting in a less-than-efficient