TB: Incentives Matter

Incentives are the cornerstone of modern life. Understanding what people (and systems) are actually rewarded for — not what they say their goals are — is the key to understanding behavior and predicting outcomes.

Misaligned incentives explain an enormous fraction of otherwise baffling human behavior: institutions that work against their stated purpose, experts who give biased advice, policies with perverse effects. Once you see the incentive structure, behavior that seemed irrational becomes predictable. The corollary is that the most reliable way to change behavior is to change the incentives, not the rhetoric.

• SuperFreakonomics (Levitt & Dubner): People who buy annuities live longer than people who don't — the steady payout provides an extra incentive to keep going.
• Modern Principles of Economics: Incentives are treated as the foundational explanatory principle.

• Second-Order Thinking
• Build Structures Around Autonomy
• Take the Other Person's Point of View