Consider these two stories from the Times:
July 6: IPhone Futures Prove to Be a Bad Investment
Across the nation, people looking to make a quick and easy profit bought one, two or as many phones as they could by recruiting friends to stand in line with them. Many of them were the first to get in line, camping overnight outside the stores. But now they are finding that the iPhone is much more like a Harry Potter book than a hard-to-find Wii video game machine: a great thing to be one of the first to own, but not high in resale value because supply is not constrained.
Last Friday, just after the first iPhones were sold, thousands of listings showed up on eBay and Craigslist, with prices of $1,000 for the 8-gigabyte phone, a $400 markup. Some bold sellers were asking $2,000. But as it became clear that supply was meeting demand, they found themselves stuck. Few of the phones have sold for more than $700, which after sales tax, is not a remarkable profit margin.
Corey Spring, a columnist at newsvine.com who analyzed eBay auctions, estimated that a significant number of sellers “were only making their money back, even closing at a loss.” Most Apple stores in the United States have no phones available, but the most determined customers seem to have been able to buy a phone. Few people seem willing to pay even $100 over the retail price.
July 2: Money for Nothing
New York City has decided to offer cash rewards to some students based on their attendance records and exam performance. Diligent, high-achieving seventh graders will be able to earn up to $500 in a year. The plan is the brainchild of Roland G. Fryer, an economist who has been appointed as “chief equality officer” of the city’s Department of Education.
The assumption that underlies the project is simple: people respond to incentives. If you want people to do something, you have to make it worth their while. This assumption drives virtually all of economic theory.
Sure, there are already many rewards in learning: gaining understanding (of yourself and others), having mysterious or unfamiliar aspects of the world opened up to you, demonstrating mastery, satisfying curiosity, inhabiting imaginary worlds created by others, and so on. Learning is also the route to more prosaic rewards, like getting into good colleges and getting good jobs. But these rewards are not doing the job. If they were, children would be doing better in school.
The logic of the plan reveals a second assumption that economists make: the more motives the better. Give people two reasons to do something, the thinking goes, and they will be more likely to do it, and they’ll do it better, than if they have only one. Providing some cash won’t disturb the other rewards of learning, rewards that are intrinsic to the process itself. They will only provide a little boost. Mr. Fryer’s reward scheme is intended to add incentives to the ones that already exist.
Unfortunately, these assumptions that economists make about human motivation, though intuitive and straightforward, are false. In particular, the idea that adding motives always helps is false. There are circumstances in which adding an incentive competes with other motives and diminishes their impact. Psychologists have known this for more than 30 years.... When you pay [people] for doing things they like, they come to like these activities less and will no longer participate in them without a financial incentive. The intrinsic satisfaction of the activities gets “crowded out” by the extrinsic payoff.
I guess what it all comes down to is that you should definitely not buy extra iPhones in order to offer them to students in exchange for getting good grades.