Incentives matter

Lecture handout: Incentives matter*

The aim of this part of the course is to fully understand the power of incentives, which are what economists define as the relationship between the benefits (the value we expect to gain) and the costs (the value we expect to give up) of a decision.

In this lecture we saw how conventional wisdom believes that seatbelts save lives. But economic wisdom asks how they affect the benefits and costs of being in an accident. The lecture content on seatbelts comes from a great book called “Risk“, by UCL’s John Adams. And here is the New York Times article claiming that “Bicycle Helmets Put You At Risk”.

We learnt that incentives matter. Here is short quiz on the effect of taxation. This podcast provides another fascinating example:

The lecture also looked at how coordination might take place without centralised control. This clip of San Francisco in 1906 demonstrates a spontaneous order:

And here’s a video on the concept of “shared space”, and what happens when traffic lights are removed:


This page ties into Chapter 1 of Economics: A Complete Guide for Business

Learning Objectives: Understand and apply the “Economic Way of Thinking”.

Spotlight on sustainability: A discussion of cycling safety

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