The power of incentives

It’s imperative that we think very literally about the incentive systems we create.

Farnamstreet illustrates this point with three examples where incentives went horribly wrong:

The British wanted to get rid of cobras in Delhi so they started paying people for every dead cobra brought in. Result: people started breeding cobras.

Belgian soldiers in Congo were told to bring severed hands as proof that they were using bullets to kill those who didn’t meet certain rubber production quotas. The king’s concern was soldiers wasting bullets by shooting game or missing their human targets. Result: soldiers started cutting off the hands of living people to make up for the cartridges they used or for the quotas that were impossible to meet.

A socially conscious company tried to help people in Ghana by paying a premium on shea nuts in order to help them. Result: people increased shea nut production four times resulting in an excess supply that had no use and which ultimately drove the prices down.

If you are in a position where you can design a system that other people will use make sure you think through the incentives it will create.

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