Incentives, or Behavioral Econ?
A most magnificent initiative by Indian Railways is what we shall be covering today. Let's begin by watching a rather well made ad:
Here are some things for you to think about:
Ticket collectors doing random checks is a negative incentive.
Us economists will say that you should calculate the probability of being caught on any given day, multiplied by the number of days you plan to use the services of Indian Railways without paying for it, multiplied by the fine that you will have to pay if caught. If this amount is lower than the total amount that you would have had to pay had you purchased tickets on each day, well then, you should cheat and not buy tickets.
"Well, actually", some of us economists will say, "You should also take into account the cost of waiting in line per day to buy the tickets."
"And, now that we think about it", they will continue, "You should also take into account the cost of the shame that you have to bear if you are caught on any random day."
When we start to talk about taking into account the psychological cost of deciding to cheat... that's the point when you should gently tap us on our shoulders and ask us to lie down for a while. This disease, AdvancedAndPointlessMicroeconomicAnalysisitis, is mostly not curable, but it is also mostly harmless. It is also referred to as Golgafrinchamitis in the medical literature. But anyway, moving on.
A lottery system based on the ticket you purchase is a positive incentive.
Us economists will say that you should calculate the probability of being rewarded on any given day, multiplied by the number of days you plan to play the lottery using the ticket you have purchased, multiplied by a (weighted average) of the total possible winnings. If this amount is higher than the total amount that you would have had to pay had you purchased tickets on each day, well then, you should not cheat, and you should buy the ticket every day.
Team WellActually will clear their throats and start to point out that your model doesn't take into account the cost of waiting and the benefit of not having to worry about shame. Put a damp cloth on their forehead, and tell them to continue lying down.
There is a chance that you will experience joy by winning the lottery. There is a chance that you will experience sorrow by being caught traveling ticketless. What matters more to you?
The lottery is slated to run from March through the middle of May (exact dates here). Are random checks for ticketless travelers going to continue during this time? Does the fine remain the same during this period for ticketless travel? What if you increased it? What if you eliminated it?
In your opinion, is this an example of conventional economics, or behavioral economics, or both? Why?
It goes without saying that you should take this blogpost, put it into an LLM of choice, and have a most excellent conversation with it.