Incentive compatibility: Setting up the rules so that it is in the interest of the one being bossed around to do exactly what the boss wants.
Case study #1: It's go-home time at my daughter's preschool. I see a parent struggling to get snow pants on his toddler in an 80-degree room. I think: "Where's the incentive compatibility in that?" I do it the easy way: I scoop up my daughter in my right arm and her winter clothes in my left and out the door we go. Whereupon, in the 30-degree cold, she dons her winter duds at a speed rivaled only by local firefighters answering a call.
Before you accuse me of being a cold-hearted economist, consider: his daughter was crying, mine was not; he was exasperated and grumpy, I was not. So who's on higher indifference curves?
Case study #2: One day I hear a mother ask her three-year-old, "Jeremy, do you want to go to the Children's Museum?" Only problem was Jeremy's reply, an emphatic "No!" Turns out the kid didn't have a choice—they were already lined up to go to the museum. So why give him a menu when the meal's already been ordered?
I have a rule: "Don't ask, just tell." What I mean is, don't present false choices: if a plan is set, follow it.
Also: Be aware that "No" is a possible answer to any question, and that three "No's" in a row usually ignite a tantrum. Before I ask, I always check for the presence of a genuine choice. Absent one, I "just tell."
I have another name for this policy, which is, "Relax, you have no choice." As in:
"I don't want to go to school today."
"I don't blame you. I wouldn't either. But unfortunately you have to."
I see parents attempting to alter their children's preferences at 7:30 in the morning, as the school bus approaches. ("C'mon, Jason, school's great!") True, tastes change and parents sometimes even have a hand in changing them, but can't we postpone this conversation till after dinner, instead of trying to steer Jason's hedonic machinery on a dime? Why not acknowledge that, yes, it's much more fun to sit in front of the TV in a nice warm house than wait at the bus stop on a cold winter's day? Acknowledge those preferences, but then, acknowledge life's constraints: "I know what you want, but sorry, it's not feasible. (Bye, see you after school.)"
Case study #3: I overhear voices escalating in volume, child then parent then child, until finally, the bomb: "If you do that again, there will be no Christmas this year." Oh really? You mean that, if your six-year-old squirts apple juice in little brother Jimmy's face just one more time: the ornaments will be taken off the Christmas tree, the tree will be left at the curb, the Christmas lists will be torn up, the stockings (already hung, with care) will be taken down, the stuff on lay-away will no longer be laying away, the lights outside will be taken down and boxed…. Stop, I'm getting exhausted and haven't even started grappling with how little Jimmy will take this.
Any six-year-old worth his or her salt knows that this threat is simply not credible and can therefore safely be ignored. Non-credible threats are but parakeet squawkings to kids; no wonder some parents complain that their kids don't listen.
A more general point is that kids, whose minds are not yet cluttered with the subtleties of, say, literary criticism or Freudian psychology, can maintain a laser-like focus on the unsubtle, which makes them great amateur economists. Consider an example of Occam's razor, overhead from a second-grader early one morning in an elevator of a Manhattan apartment building: "Mom, the reason why Billy hits me is not because he hates himself, it's because he hates me!"
The child intuitively grasps an economic modeling concept that the mother does not: Keep the assumptions simple and plausible.
Case study #4: A parent friend of mine was told at a parent teacher conference: "Mr. Jones, your math skills are excellent. We are concerned, however, about your son's skills."
Turns out Mr. Jones was providing just a bit too much help with homework—thereby diluting his son's work incentives. There's a name for this in economics: it's called "crowding out," and it applies generically to any situation where outside help merely supplants private efforts to solve a problem: be it social security and retirement savings, welfare payments and work effort, or public safety nets and charitable giving.
In light of the specter of crowding out, my first response to my daughter's complaints about anything—lost toys, hard homework, you name it—is "Oh, no! What are you going to do about it?"
I think economic principles have a lot to offer parents. Parents hold considerable sway over their kids. Maybe not as much as they like, but nonetheless: what parents do affects their child's incentives. And the main take-home message of economics is that incentives matter. (Plus, even the word "economics" comes from the Greek oikonomia, or "housekeeping." How appropriate is that for the quotidian life of kid management?)
I don't want you to think, though, that our house is one big agora! My wife and I don't, for example, drive our kids nuts with cognitive-dissonance-inducing choices. To wit: We don't browbeat them with "You can only have one toy in this store! Not two! Choose!" (In fact, telling them they can't have any toys but, hey, let's look at them all usually works much, much better.) Nor do we micromanage our kids with cash payments. For one thing, there is some evidence, counter to a strict "Econ. 101" view, that explicit payments could actually dilute intrinsic motivation by turning every family activity into a nickel-dime bargaining game. In what is perhaps a twisted form of crowding out, explicit, but small, payments sometimes backfire by crowding out existing internal incentives. (Gneezy and Rusticini found that fundraisers worked harder as volunteers than as employees paid piece rates.) Families are fundamentally different from markets, after all, and the subtle tug of altruism and reciprocity can be more effective—not to mention more civil—than explicit prices.
Still, I think Econ 101 can oftentimes be a godsend for families. Take sunk cost: It's 98 degrees with 100 percent humidity at the amusement park, where Dad has just shelled out the whopping all-day family fee. But after an hour the weather is taking its toll: the kids are crying and everyone's testy. Do we really want Dad, Ahab-like, to be bound and determined to go on every ride in the park, just because they're already paid for? Even with no hope for a refund, wouldn't everyone be happier to retire to the air-conditioned HoJo's down the street?
That's the parenting policy prescription from Econ 101, and it's one I'd be inclined to follow.