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Incentive Design

What a system rewards is what a system produces.

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    Incentive Design Entry #0383

    The reason relative ranking beats absolute targets

    A fixed target stops motivating the moment it is met. A ranking has no ceiling, and it also has no protection against the loser competing on the wrong dimension.

    Adept
    The hidden part #0383

    A target has a ceiling and a ranking has none. Uncapped competition also has no cap on how it is pursued.

    Open file
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    Incentive Design Entry #0378

    Why a fine can act as a price

    Before the fine existed, guilt kept the behaviour in check. After the fine was introduced, the behaviour increased — because paying made it permissible.

    Novice
    The hidden part #0378

    Priced misbehaviour becomes permitted misbehaviour. The fine did not add a cost; it removed a prohibition.

    Open file
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    Incentive Design Entry #0380

    Why commission changes advice more than dishonesty

    Advisers paid by outcome rarely lie. They notice different options, so the incentive does its work through attention rather than through deceit.

    Master
    The hidden part #0380

    An incentive does not need to corrupt anyone. It only needs to change which option comes to mind first.

    Open file
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    Incentive Design Entry #0387

    The reason equity behaves unlike a bonus

    A bonus arrives and is spent. Equity sits and waits, and while it waits the holder becomes someone with something to lose.

    Adept
    The hidden part #0387

    A bonus is a carrot. Equity is an endowment that creates a loss to defend. The second changes the holder more deeply, and not always in the direction intended.

    Open file
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    Incentive Design Entry #0386

    Why rewarding attendance lowers performance

    An attendance reward pays for presence. Presence is not performance, and the reward does not know the difference.

    Novice
    The hidden part #0386

    Attendance is the cheapest proxy for performance. The bonus pays for it, and the workforce delivers exactly what was purchased.

    Open file
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    Incentive Design Entry #0385

    The reason deadlines set by others are missed differently

    A deadline the person chose binds more tightly than one imposed from outside. The difference is not in the calendar but in who owns the commitment.

    Master
    The hidden part #0385

    The date is the same. The ownership is different. A commitment made by the person who must keep it binds in a way that an instruction does not.

    Open file
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    Incentive Design Entry #0384

    Why a guaranteed minimum changes risk-taking

    A floor removes the downside. What remains above the floor is pure upside, and the calculation that follows treats it accordingly.

    Adept
    The hidden part #0384

    A floor removes the downside from the calculation. What remains is pure upside, and the bets that follow reflect it.

    Open file
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    Incentive Design Entry #0381

    The reason a safety bonus can hide accidents

    Paying a team for a clean record rewards two different things: fewer incidents and fewer reports. Only one of them is under the reporter’s direct control.

    Adept
    The hidden part #0381

    An incentive on a reported number acts on the reporting. The absence of records is not the absence of events.

    Open file
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    Incentive Design Entry #0379

    The reason a target hit exactly is suspicious

    Genuine performance is spread out. When results pile up immediately above a threshold and thin out below it, the distribution is reporting the incentive.

    Adept
    The hidden part #0379

    Look at the shape, not the summary. A cliff at the threshold is evidence about the incentive, not about the work.

    Open file
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    Incentive Design Entry #0377

    The reason a bonus for lines of code produces long code

    Measure what you want and you will get exactly that — the metric, not the quality the metric was supposed to represent.

    Adept
    The hidden part #0377

    Reward defines the output. The metric does not fail because people cheat; it fails because people succeed at optimising exactly what was measured.

    Open file
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    Incentive Design Entry #0382

    Why a referral scheme attracts the wrong customers

    Paying for introductions selects the people most responsive to being paid. Volume rises and average customer quality moves in the other direction.

    Novice
    The hidden part #0382

    An incentive selects who responds to it. A per-head fee replaces the referrer’s judgement with their willingness to be paid.

    Open file
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    Incentive Design Entry #0376

    Why paying for blood donations reduced supply

    Adding money to a voluntary act can reduce how often it is performed, because the payment replaces the reason people were doing it at all.

    Novice
    The hidden part #0376

    A payment does not only add a motive. It can delete the one that was already there.

    Open file