People Respond to Incentives

Page 2 in your text briefly relates incentives with choice of an action. In terms of cost benefit analysis, incentives can be viewed as benefits or ( negative benefits ). For the society, we would hope that incentives urge people to do more of a good thing and less of a bad thing Best selling authors Levitt and Dubner ( Freakanomics) described an incentive as a bullet, a lever, a key: an often tiny object with astonishing power to change a situation. There are at least three basic flavors of incentive: economic, social, and moral. All of which involved some type of costs and benefits .
According to Levitt and Dubner, every one of us regularly passes up opportunities to maim, steal, and defraud. The chance of going to jail—thereby losing your job, your house, and your freedom, all of which are essentially economic penalties -- is certainly a strong incentive. But when it comes to crime, people also respond to moral incentives (they don't want to do something they consider wrong) and social incentives (they don't want to be seen by others as doing something wrong). For certain types of misbehavior, social incentives are terribly powerful. In an echo of Hester Prynne's scarlet letter, many American cities now fight prostitution with a "shaming" offensive, posting pictures of convicted johns (and prostitutes) on websites or on local-access television. Which is a more horrifying deterrent: a $500 fine for soliciting a prostitute or the thought of your friends and family ogling you on www.HookersAndJohns.com