Download this Paper Open PDF in Browser

An Offer You Can't Refuse? Incentives Change What We Believe

100 Pages Posted: 27 Aug 2016 Last revised: 20 Oct 2016

Sandro Ambuehl

University of Toronto - Joseph L. Rotman School of Management - Business Economics; University of Toronto at Scarborough - Division of Management

Date Written: October 14, 2016

Abstract

Much of economics assumes that higher incentives increase participation in a transaction only because they exceed more people’s reservation price. This paper shows theoretically and experimentally that when information about the consequences is costly, higher incentives also change reservation prices to further increase participation. A higher incentive makes people gather information in a way that is more favorable to participation—as if they were persuading themselves to participate. Hence, incentives change not only what people choose, but also what they believe their choices entail. This result informs the debate about laws around the world that severely restrict incentives for transactions such as organ donation, surrogate motherhood, human egg donation, and medical trial participation. It helps bridge a gap between economists on the one hand and the policy makers and ethicists on the other.

Keywords: Incentives, Repugnant Transactions, Information Acquisition, Rational Inattention, Experiment, Individual Choice

JEL Classification: D03, D04, D84

Suggested Citation

Ambuehl, Sandro, An Offer You Can't Refuse? Incentives Change What We Believe (October 14, 2016). Available at SSRN: https://ssrn.com/abstract=2830171

Sandro Ambuehl (Contact Author)

University of Toronto - Joseph L. Rotman School of Management - Business Economics ( email )

Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Ambuehl

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

Paper statistics

Downloads
247
Rank
103,302
Abstract Views
586