Can Incentives Cause Harm?
Research Seminars: Virtual Market Design SeminarTests of Undue Inducement
Around the world, laws limit incentives for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement — the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. The paper presented in this research seminar develops a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In the authors experimental data, no such weights exist.
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