To incent or not to incent?

I majored in economics and – for better or for worse – I think like an economist. We economists are generally obsessed with a few things, including supply and demand, externalities, opportunity costs, competitive advantage … and incentives.

Incentives are powerful. The problem is, they tend to create externalities (often negative) because the behavior that we intended to incent was not the behavior that our incentives actually incented. Still with me?

Surveys. Do you offer an incentive to respond? If you do, you might get more responses. Then again, you might attract a less engaged group of customers who go through the motions without putting any thought into their responses.

Referrals. Do you offer an incentive to refer? If you do, you might get more referrals. Then again, you might get a bunch of bogus e-mail addresses or bogus activity that dilutes the authentic content of your site.

Incentives can also be expensive. Even if what you’re giving away has little marginal cost, you have to track behavior and dole out the incentives. There’s also the pesky, frustrating, potentially mind-numbing task of weeding out the “negative externalities”.

Consider this: We often think that no one will do anything for free. “We must offer incentives! You get what you pay for!” Why, I ask you, will people line up to donate blood (for free), but you’d have a line of empty cots if you offered them each five bucks? Basically, you’ve changed the ask. By offering a financial incentive, you’ve transformed a selfless act of community service into a miserable way to make five bucks.

What incentives can we use to get more survey responses, more referrals, and more of the behavior we want? We’re going for positive externalities here, people.

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