The Power of Incentives

“Never, ever, think about something else when you should be thinking about the power of incentives.”

-Charlie Munger

This is why I’m taking a break from social media at the time of this writing. The incentives of ad-supported social networks are not aligned with my goals.

Behaviorist BF Skinner understood the power of providing regular, spaced, or random rewards & punishments. I like to remember that the Nazis seemed like everyday people before and after Hitler. Employees of corporations commit accidental atrocities without knowing it. (but sometimes it is on purpose)

Smart people can act dumb, ethical might cheat, and normal people can become sociopathic because of their incentive systems. Like the old saying goes…

“Don’t expect someone to understand something if their salary depends on them being ignorant.”

Here’s Munger’s giving a commencement speech at USC:

You do not want to be in a perverse incentive system that’s causing you to behave more and more foolishly or worse and worse — incentives are too powerful a control over human cognition or human behavior. If you’re in one [of these systems], I don’t have a solution for you. You’ll have to figure it out for yourself, but it’s a significant problem.

If you’re part of an idiotic system, dangerous or unethical system. Get out now.

I try to remind myself that designing the right incentives is probably 95% of leadership. The good news is, you can use incentives to be more ambitious, think bigger, and work out more.

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