Cat Potts, Chapter 2, Question 6

Incentives influence every decision we make. As we  discussed early on in class, people act based on rational self-interest. Not necessarily because humans are selfish in nature, but because we want to do what makes the most sense for ourselves. On pages 36 and 37, Wheelan mentions the airplane scenario that we talked about the first week of class. Now that we've learned about supply and demand and we've started to talk about marginal personal and social costs/benefits, everything is starting to come together. Incentives are by far the most fascinating aspect of economics, especially when interpreting what kind of outcome an incentive can produce. What was particularly striking to me was the London congestion fee, on pages 38 and 39. Despite all that it affected (traffic, average speed, number of bus passengers), the revenue was significantly lower than what the government would have preferred, because people were acting in rational self-interest. If driving in times of congestion means that you have to pay a fee, naturally fewer people would drive. It seems bizarre to me that those imposing the fee wouldn't consider that revenue would be lower if fewer people chose to just drive and pay the fee. This is why economic thinking requires looking at the situation from every possible outcome before making a decision. Perhaps they could have found a way to impose the driving fee while still making enough money, had they considered possible consequences of their actions.