An Offer You Can't Refuse? Testing Undue Inducement

Around the world, laws limit incentives for transactions such as clinical trial participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement−the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. I develop a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In my experimental data, no such weights exist.