People acting in an anomalous way can do better by reducing their anomalies, and clever people and firms can profit by exploiting anomalies. Due to these reactions, anomalies and their frequency are not exogenously given (as is assumed in the ‘psychological’ and the ‘axiomatic’ approaches) but are endogenous and influenced by social processes. The here proposed ‘incentive’ approach focuses on the conditions under which, on the one hand, anomalies can be created and strengthened, and on the other, anomalies can be avoided. Public policy measures which influence the amount of resources expended on anomalies are discussed.
Frey, B. S., &Eichenberger, R. (1994). Economic incentives transform psychological anomalies. Journal of Economic Behavior &Organization, 23(2), 215-234.