Extra Credits: The Power of Incentives

Often politicians and other big world "shakers" make obvious or crude choices. Afterwards they are shocked by the unforeseen consequences.

One of the simplest examples is the car pollution problem. We are all well aware that gasoline powered cars produce a lot of CO2 and that electric cars do not. Thus it appears straightforward to encourage the usage of electric cars. But in some countries this approach does not solve the pollution problem. Why? Because electricity used to charge electric cars is still produced by burning coal, which also produces pollutants. So the pollution problem is simply moved from the transportation sector to the electric power industry.

Mexico city took different approach to the same problem. They banned driving cars with certain plate numbers from driving on certain days of the week. E.g., if your car plate number ends in 3 or 5, then on Tuesday you would be banned to drive it. So the air pollution should decrease by 1/7th, but it did not. In fact the air pollution rose. Why? Because people saw other problem - the plate number. So they solved it by buying cheap old cars, which would have different plate number. Thus these cars served as a replacement for the "main" car on the "banned" days.

These problems could be foreseen by using computer games! Seeing how people act in virtual environments. Understanding what incentives do our regulations create.

We invite you to watch a video by Extra Credits on this topic.