NBA Drafts, Australian Convicts, and Early Pilgrims: The Importance of Incentives
If you happened to watch the NBA Draft Lottery last month (or heard about it at a later date), a particular detail about how top picks are assigned likely stood out to you. I'm talking about the choice to use a weighted lottery that favors the worst teams instead of guaranteeing them top picks, which seems somewhat counterproductive to the draft's goal of helping the worst teams improve through access to the best incoming talent. However, a look into the draft's history reveals that what seems to be a poor choice is, in fact, a necessary modification that strengthens the league by addressing a key economic issue that lies at the heart of our history, modern policy systems, and more.
The draft's history traces back to 1947, a year after the Basketball Association of America (the NBA's precursor) was created. In the draft's early years, picks were assigned in reverse of the win-loss record order, meaning worse teams got better picks. This system was lightly modified in 1966 to include a new quirk: the two worst teams (one from each conference) would flip a coin to assign the top two picks. However, the early draft system faced a significant problem, or at least the allegations of one: multiple teams were accused of throwing their regular season games to improve their chances of getting the first pick (and thus a huge advantage in future seasons). In response to this, the league switched to a lottery system in 1985. Initially, this lottery consisted of drawing the names of every non-playoff team from a hopper (later changed to the three worst teams), with the order in which names were drawn determining the assignment of picks. After that, the remaining first-round picks were assigned by reverse win-loss order. Later, in 1990, the NBA modified the lottery again, replacing the hopper with a weighted system that gave every team a shot at a top pick (while still heavily favoring those with worse records). They've continued to tinker with the weighted lottery since then, making it further favor the worst teams while giving the three worst teams an equal probability of getting the best picks.
All of these changes, as seemingly random as they may be, allowed the NBA to deal with a critical economic issue: incentives. While incentives are hard to define precisely, the general idea is that they are anything that induces people to act one way or another. As a result, an incentive can be almost anything. And even though they may seem simple, incentives are both complex and incredibly powerful, covering such disparate areas as behavioral economics (especially nudge theory) and public choice theory. In the case of the NBA Draft, the attempts to keep basketball fair and fun inadvertently incentivized behavior that made basketball unfair and boring. To be more specific, giving worse teams better picks encouraged already good teams to purposefully blow their seasons (increasing disparities between teams and making the sport less fun). The only way to deal with this – other than no longer prioritizing worse teams – was to weaken the strength of the incentives, which would reduce bad behavior in the process. The NBA's many modifications to the draft did just that, making being the worse team or a worse team much less of a guaranteed ticket toward a great pick than in the early years or even a few decades ago.
The NBA Draft is just one of the countless examples of how incentives are relevant to our everyday lives and our history, two more of which I shall discuss below: the transportation of convicts to Australia and the adoption of private property by the Pilgrims. In each of these cases, initial systems set up poor or even counterproductive incentives that had to be fixed by new, better approaches.
The transportation of convicts to Australia started in 1788 (though the first penal colony was set up in 1786), in the aftermath of American independence, as a new way to reduce overcrowding in English prisons. By 1868, as many as 162,000 prisoners had made the journey. At first, these convicts were poorly treated on the journey – with a 10% mortality rate per voyage on average during the first decade [Sturgess et al, 2016] – and arrived (if they survived) both abused and malnourished. This was in part due to ships being recruited through transactional contracting, which meant the crews didn’t intend to do many voyages and thus didn’t need to worry about preserving their reputation by treating their prisoners well. Reports of the mistreatment of convicts sparked a massive public outcry in England, but the government's attempts to address their concerns by mandating better treatment proved unsuccessful. However, over time a number of new practices were introduced, including everything from routine health inspections to having the penal colony’s governor give ship surgeons (the people responsible for prisoner’s health) certificates of performance that evaluated them based on interviews with convicts and conversations with officers. [Sturgess et al, 2016] The certificates proved to be particularly powerful in incentivizing better behavior as they served as a way of displaying one’s medical abilities and were often used as the basis of bonuses based on the number of prisoners who arrived alive. [Sturgess et al, 2016] Together, these new practices served to improve the treatment of prisoners and down mortality rates to the point it was not unusual for a ship to arrive with no dead prisoners on board.
By contrast, the story of the Pilgrims is less a tale of saving lives and more one of improving them. Upon first arriving in what we now call Massachusetts, the colony instituted a system of common property at the behest of its investors. The leadership even prohibited Pilgrims from maintaining small private gardens to supplement the common farmland. Yet despite this attempt to focus all the people's efforts on their shared land, the colony suffered from low agricultural productivity as well as poor productivity overall. The reason for this was quite simple: a lack of private property meant the colony would feed people regardless of contribution, lessening the incentive to work. Moreover, people who put in additional work would receive no additional goods, disincentivizing them from putting in their total effort. As a result of low productivity, the colony suffered until the colonists got together and made a radical decision: return to truly private property. This proved to be a massive success, as it incentivized the people to work harder and put in more effort, raising productivity and making everyone better off.
Hopefully, this essay has shown you the incredible power of incentives, a concept that you can apply to so much of the world around you. Today, everything from credit card awards to cash subsidies for mothers to tax deductions on certain expenses are intended to shape our choices for one reason or another. Some of these incentives work, and many others do not (the reasons for which I will explore at a later date), but regardless of their success, incentives can help us understand the structure of various systems as well as why many seemingly good ideas produce bad results. So, next time you learn about something that seems odd on the surface, be it another sports draft or something different altogether, try to think about the role incentives may have played in that design.
Works Cited
NBA.com: Evolution of the Draft and Lottery. (2010, December 3). Web.archive.org. https://web.archive.org/web/20101203184544/http://www.nba.com/history/draft_evolution.html
Benthell, T. (1999, January 30). How Private Property Saved the Pilgrims. Hoover Institution; Hoover Institute. https://www.hoover.org/research/how-private-property-saved-pilgrims
Sturgess, G. L., Argyrous, G., & Rahman, S. (2016). Commissioning Human Services: Lessons from Australian Convict Contracting. Australian Journal of Public Administration, 76(4), 457–469. https://doi.org/10.1111/1467-8500.12234
