When I was first introduced to economics, I found that I enjoyed the history of economic thought – the great writers such as Adam Smith, John Stuart Mill, Keynes, Galbraith, etc. But then my econ classes turned more toward math and graphs. I eventually lost my original enthusiasm for the field but gained some appreciation for why it can be referred to as “the dismal science”.
Economics has once again become interesting to me as a number of excellent books have been published that approach economics from the standpoint of psychology and incentives. The study of incentives has always been key to economic thought – that isn’t anything new. However, it feels to me that there has been a lot of fresh writing in this area – examples include everything from Malcolm Gladwell to Daniel Kahneman to the Freakonomics books, Dan Ariely’s writings, and others. Truly, whatever behavior you subsidize or incent you will get more of.
Since I’m confounded by the morass of the American healthcare system and what passes for “debate” on this issue in Washington, I have a tendency to pick up books that help me understand different points of view on the problem. Books that fit this category include Catastrophic Care by David Goldhill and America’s Bitter Pill by Steven Brill (for the essay that launched Brill’s book, go here).
I just finished An American Sickness by Dr Elisabeth Rosenthal, a new and powerful book that I highly recommend. Keep in mind that I’m not recommending it because it’s always fun to read. Since Dr. Rosenthal relates a number of stories about people being caught in a web of overcharges and diminishing competition, it reads more like a horror novel than some of the Stephen King books I’ve read. I almost had to sleep with the light on.
Since this is a blog about leadership, innovation and personal effectiveness, I’ll leave the healthcare debate aside. However, this one section caught my attention:
“Cataracts can be detected during an eye exam long before they become a real bother to patients, so there is much discretion about when to perform surgery. Studies have shown that the rates of cataract surgery are highly dependent on how much doctors are paid to do the procedure. In one study in St. Louis, the number of cataract surgeries performed dropped 45 percent six months after a group of doctors went on salary and were no longer paid per surgery.”
I don’t know about you, but I find that to be a bit alarming. It’s a pretty good indicator that doctors who are incented to do cataract surgeries will do borderline cases to pump up their income. And this got me to thinking about incentives in general.