Abstract

Around the world, laws limit the incentives that can be paid for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason are concerns about undue inducement: the influential but empirically untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives cause biased information search.

Contrary to common interpretations, such behavior is no proof for harmful effects of incentives; it is consistent with Bayesian rationality. Empirically, a substantial minority of participants make bad decisions, but incentives do not magnify them in a way that would justify allowing a transaction but capping incentives.

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