Incentives - Part 1

OK, so this is Part 1 of 2 on different factors to consider on incentives.

A lot of healthcare plans are trying out incentive plans to encourage patients to take action to make themselves more healthy. A laudable goal, plus a healthy insured party is a cheaper insured party, so everyone wins except for the providers of chronic and acute care.

Here's the first wrinkle:

http://econ161.berkeley.edu/Economists/prisoners_dilemma.html

Quick summary: If you run the iterated prisoners dilemma where one party gains more in absolute terms than the other in all payout terms, the party that gets the short end of the stick occasionally defects just to increase the sense of "fairness" even though it reduces his own absolute payout.

So, if you are giving someone an incentive, either:

1. Split the gains from cooperation evenly

or

2. Keep your gains to yourself

Giving someone an "I took my insulin" pin while you take home an extra $1,000 is probably not an option.