Incentives Gone Wrong
October 2, 2025
We started by going over our class norms. Then we did a mini lesson on incentives, followed by a group presentation activity.
Xerox's fax machines
Xerox released a new top-of-the-line fax machine. It was cheaper and much better than anything else on the market, including Xerox's own older models. But in stores, the older model was actually selling better.
Xerox couldn't figure out why, so they investigated. It turned out the older model paid salespeople a higher commission, so employees at the office supply stores pushed the old model because that's what made them the most money.
Takeaway: incentives influence every action, directly or indirectly. When incentives are misaligned, they can lead to results nobody wanted.
The daycare in Israel
A daycare in Israel was tired of parents picking up their kids late, so it started charging a fine for late pickups. Instead of going down, late pickups went up.
Why would that happen if parents now had to pay? Researchers figured out that parents no longer felt bad about being late, because now they were paying for it. The fine was less costly than the guilt of picking up your child late.
Takeaway: incentives aren't always money. Sometimes they're emotional.
We had a quick discussion about how this relates to MUN. A lot of you found these examples really interesting, because what happened isn't exactly what you'd expect.
Activity: incentives that backfired
In assigned groups, everyone found a real event where a well-intended solution failed because of misaligned incentives, one we hadn't already talked about. Each group made a slideshow with:
- A title
- What the problem was
- What the solution was
- Why the solution failed
- If there was extra time: what could have been a better solution
Then every group presented. The group that put in the most effort got a prize at the end.
The goal was to think critically, practice working with people you don't know as well, and practice public speaking.