How do people make decisions? According to Steven D. Levitt in Freakonomics, incentives are the driving force behind most human behavior. This key idea explores how people respond to incentives, whether they are financial, social, or psychological. Levitt argues that incentives can explain why people make certain choices, and why they act in ways that seem counterintuitive.

Levitt provides a variety of examples to support this claim. For instance, he explains how teachers in Chicago public schools were incentivized to cheat on standardized tests. Through financial incentives and pressure from their superiors, teachers were motivated to improve test scores at any cost - including cheating. Similarly, Levitt illustrates how real estate agents have a conflict of interest when it comes to selling a property. Rather than maximizing the seller's profit, agents may be more focused on quickly closing the deal and securing their commission.

Incentives can also be used to encourage positive behavior. Levitt mentions an experiment in Israel where children were incentivized to get their flu shots. Instead of offering money or other tangible rewards, the experiment offered the children a sense of pride and accomplishment. As a result, more children got their flu shots, even though the incentive was not a traditional one.

This key idea also touches on the ways that incentives can have unintended consequences. Levitt cites the example of the war on drugs, which was motivated by the incentive to reduce drug use in the United States. However, this incentive led to a number of unintended consequences, such as increased violence, mass incarceration, and racial disparities in the criminal justice system.

Overall, incentives are a powerful force in shaping human behavior. Whether they are positive or negative, financial or social, incentives can drive people to act in certain ways. By understanding the incentives at play in a given situation, we can better predict human behavior and design more effective policies and systems.