the law can be that overbooking is allowed but airlines also cant involuntary boot anyone. They have to incentivize someone to get off. I'm sure if they went up to $2k in cash someone would have taken them up on the offer and just ubered to ($400ish if I remember what my check showed me) to their destination. For me, $800 (even cash) wouldn't have been sufficient for me to convince me to uber to my destination, even if I wouldn't have lost money on the transaction.

i.e. airlines are only allowed to purposefully overbook due to DOT rules, the same rules provide what I perceive as a perverse incentive when it comes to encouraging involuntary bumping.

The part you are missing is that airlines don't need a law that lets them overbook. They absolutely can involuntary boot anyone for any reason (other than discriminatory reasons that are otherwise illegal). Booting a person would be a breach of contract, but breaches of contracts aren't illegal.

Hell, they could update their contact and then it wouldn't even be a breach of a contract.

The law was written to reign in their behavior. Without it, they have a lot more freedom.