5 min listen
The 6 Principles of Incentive Design
ratings:
Length:
14 minutes
Released:
Jul 12, 2022
Format:
Podcast episode
Description
Episode at a glance:
Incentives are a powerful and ubiquitous force. "Show me the incentive and I will show you the outcome" - Charlie Munger. Thoughtfully-designed incentives are likely to create wonderful outcomes. Poorly-designed incentives are likely to create terrible outcomes.
Goodhart's Law says that when a measure becomes a target, it ceases to be a good measure. Because of Goodhart's Law, incentive systems often suffer from unintended consequences.
Poorly-designed incentives typically exhibit the McNamara Fallacy (what can't be measured isn't important), a narrow focus (missing the forest for the trees), or an obsession with vanity metrics (what looks impressive versus what actually matters).
The 6 principles to consider in crafting thoughtful incentives: (1) Objectives, (2) Metrics, (3) Anti-Metrics, (4) Stakes & Effects, (5) Skin in the Game, and (6) Clarity & Fluidity.
Incentives are a powerful and ubiquitous force. "Show me the incentive and I will show you the outcome" - Charlie Munger. Thoughtfully-designed incentives are likely to create wonderful outcomes. Poorly-designed incentives are likely to create terrible outcomes.
Goodhart's Law says that when a measure becomes a target, it ceases to be a good measure. Because of Goodhart's Law, incentive systems often suffer from unintended consequences.
Poorly-designed incentives typically exhibit the McNamara Fallacy (what can't be measured isn't important), a narrow focus (missing the forest for the trees), or an obsession with vanity metrics (what looks impressive versus what actually matters).
The 6 principles to consider in crafting thoughtful incentives: (1) Objectives, (2) Metrics, (3) Anti-Metrics, (4) Stakes & Effects, (5) Skin in the Game, and (6) Clarity & Fluidity.
Released:
Jul 12, 2022
Format:
Podcast episode
Titles in the series (100)
The Containerization of the World: The story of the week in the business world is the blockage of the Suez Canal by a massive container ship. Weighing 200,000 metric tons, dislodging the ship is no easy problem to solve.But while it happened in 2021, the roots of this problem date back to by The Curiosity Chronicle