William J. Polley

I think my point - not well stated - was that income effects not only matter but may also condition substitution effects.

You're asserting a sort of Giffen paradox? If the activity is inferior enough, then the monetary incentive works backwards?

I could see this in certain cases if the offer of money offends the person. I would also accept an explanation that asserts a non-linearity. That increasing the monetary incentive from zero to anything positive changes the framing of the issue so as to alter behavior--but in those cases (as in the Swiss example Schwartz cites), it just means you have to raise the incentive.

As someone who is frequently on the other side of the argument let me explain my experience.

Economic theory is a great place to start. But it should only be the first step in your analysis.
The theory get you started in the right direction.
But next you have to look at what special factors in each situation makes this case different and will
cause standard theory to be misleading.

One of the best example is investment by the oil companies in new energy. We have a great theory that price controls discouraged capital spending on new energy in the 1970s. But you look at the data and see that there was a fantastic capital spending boom on energy during the period of price controls. Essentially the only constrain on drilling was the capacity of the oil service industry and that was expanding as fast as it could. So the theory did not work in the 1970s.
There was nothing wrong with the theory, it just that other factors massively overrode the negative impact of price controls.

Now we see energy prices soaring and should expect massive capital spending by the oil companies.
But oil company spending is very disappointing.
Is the theory wrong, or does it just give insufficient weight to the point that the top executives of the oil companies all experienced the 1980s when the oil bust nearly bankrupted their companies and they do not want to repeat that experience. So that all are very conservative on the price they use to justify need exploration .
Again, it is not that the theory is wrong. It is just that it other factors that the theory does not include also play a major role in the situation.

Or, as I tell my students: In the real world, ceteris is not always paribus.

Physics suffers from the same problem. Galileo said that two falling bodies dropped from the same height at the same time will hit the ground at the same time regardless of their mass. But if you drop a brick and a feather from your roof, the brick always hits first. Why? The answer is, of course, air resistance. Galileo wasn't wrong. But elementary physics makes some simplifications in eliminating frictions like that. And I think most people who teach physics would hold that it is useful to teach it that way before adding the frictions.

So it is with supply and demand. The model is a simplification. Sometimes the simplifications we make lead to predictions that turn out to be wrong.

At an elementary level, it may be enough to teach the simplified model and add a cautionary note that includes a simple analysis of situations like this. Just as a physics course would present Galileo's theory and an explanation that the reason it doesn't always work on Earth is because of air resistance.

At a more advanced level, the frictions can be developed and added to the model in a more comprehensive way. Just as a course in advanced aerodynamics could model the effect of air resistance with differential equations.

I have always been careful not to take the supply and demand model too literally. But anyone who claims that demand curves slope upward has the burden of proof on them.