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MKA 3702 September 21, 2010 People respond to incentives in predictable ways . Incentives are benefits or rewards that encourage people to act. When incentives change, people’s choices change. I do agree that people respond to incentives in predictable ways because a lot of times people are not going to put in the time and effort into something that they are not getting anything out of. It is ironic that a lot of times when people are making a decision, they see incentives rather than doing an analysis of whether the incentives of that product truly fiscally outweighs the cost of that product. For example, last year when I was apartment hunting, one of the incentives was that you would receive a $250 visa gift card. As a college student, that sounded like you were getting a lot of “money” for something that you were going to do anyways but if one was to do a cost benefit analysis of how much the rent was, the $250 gift card really only lowered rent for the year by $21. If the rent was $500 and if you only wanted to spend $450, then the benefit did not outweigh the cost. I
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Unformatted text preview: believe that this is a fine example as to how people may make a decision, but it does not always optimize their benefits. Companies create incentives so that their businesses can become more competitive and thus creating more revenue. Some governmental incentives that people have responded to lately have been the first time homebuyer’s credit where new homebuyers could receive up to $8000 and $6500 for repeat homebuyers. Banks offering low interest rates to entice people to borrow small loans, this way there is more of a chance that the borrower will pay it back in an short amount of time. Overall, I believe that it is sometimes unfortunate that incentives shape people’s decisions because sometimes people act only because they want to gain not because they truly want to do it but on the flip side governmental incentives may be able to stimulate the economy and also create jobs....
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