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	<title>Adi Gaskell says... &#187; Endowment effect</title>
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		<title>Do incentive schemes have things back to front?</title>
		<link>http://www.adigaskell.org/blog/2008/10/15/do-incentive-schemes-have-things-back-to-front/</link>
		<comments>http://www.adigaskell.org/blog/2008/10/15/do-incentive-schemes-have-things-back-to-front/#comments</comments>
		<pubDate>Wed, 15 Oct 2008 13:16:57 +0000</pubDate>
		<dc:creator>adi</dc:creator>
				<category><![CDATA[Work]]></category>
		<category><![CDATA[cashback]]></category>
		<category><![CDATA[endowment]]></category>
		<category><![CDATA[Endowment effect]]></category>
		<category><![CDATA[game theory]]></category>
		<category><![CDATA[incentives]]></category>
		<category><![CDATA[reciprocity]]></category>
		<category><![CDATA[Tit for tat]]></category>

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		<description><![CDATA[Cashback websites are well established now and with Microsoft deciding last month to start rewarding people for using their products it seems that incentivizing people to use a service is an effective means of honing behaviour.  But could it be done better?
The whole notion rests on that of reciprocity.  Game theory went to great lengths [...]]]></description>
			<content:encoded><![CDATA[<p>Cashback websites are well established now and with Microsoft deciding last month to start rewarding people for using their products it seems that incentivizing people to use a service is an effective means of honing behaviour.  But could it be done better?</p>
<p>The whole notion rests on that of reciprocity.  <a title="game theory" href="http://en.wikipedia.org/wiki/Game_theory" target="_blank">Game theory</a> went to great lengths to investigate just how people react in such circumstances and by and large found that a <a title="tit for tat" href="http://en.wikipedia.org/wiki/Prisoners_dilemma" target="_blank">tit-for-tat</a> approach is taken.  In a gift exchange game, where two persons in turn determine how large gifts to give to one another, a large gift by the first mover is reimbursed by the second mover.</p>
<p>In incentive schemes however the onus is very much on the user to complete an action, and for them then to be rewarded for so doing by the website.</p>
<p><strong>Whilst this clearly works to an extent, could it work that much better? </strong></p>
<p>Another theory that appears to support the giving by the website in return for action by the user is <a title="endowment effect" href="http://en.wikipedia.org/wiki/Endowment_effect" target="_blank">Endowment theory</a>.  The endowment effect suggests that the value assigned to an item rises once a person has ownership of it.  So in other words, we value things more once they&#8217;re ours than when they are not.</p>
<p>So in this context the user would be rewarded outright and would then have to earn the right to keep their reward.</p>
<p>Incentivized websites are big businesses at the moment, with the cashback sector drifting wholesale towards a 100% cashback model.  Is there room for something a little bit different in the market?</p>
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