Overview
This lecture introduces the study of economics, focusing on the concept of incentives and how understanding economics changes how you view the world.
The Power of Economics
- Economics influences how we understand everyday life and major social issues.
- The field examines how people make choices and how they should make choices under scarcity.
- Learning economics helps make informed decisions in areas like careers, parenting, and education.
The Importance of Incentives
- Incentives explain why service varies between businesses, such as restaurants versus cable companies.
- Sometimes, regulations meant to protect can have the opposite effect if incentives are misaligned.
- Companies may support costly regulations if it benefits them against competition.
The Sea Captain Example
- In 1787, British prisoners shipped to Australia faced inhumane conditions due to payment incentives.
- Appeals to emotion and regulation failed to improve prisoner survival rates.
- Paying captains for prisoners delivered alive changed incentives, increasing survival rates to 99%.
Studying Economics
- Economics is broader than just personal finance or investing; it covers all human choices.
- Understanding economics provides tools for analyzing and interpreting key societal issues.
- While challenging, learning economics offers a new way to see and understand the world.
Key Terms & Definitions
- Incentives — factors that motivate and influence the behavior and decisions of individuals or organizations.
- Scarcity — the limited nature of resources, requiring choices about how to allocate them.
- Economics — the study of human action regarding choices made under conditions of scarcity.
Action Items / Next Steps
- Prepare to retrain your thinking and approach the world through an economic lens.
- Reflect on examples of incentives influencing behavior in your daily life.