No. 361 · Fixing problems · Systems

Incentives

People do what they are rewarded for, not what they are told or asked.


Incentives are the rewards and penalties that steer behavior. When Britain paid convict ship contractors per prisoner landed alive instead of per prisoner loaded, later voyages were far safer. Safelite's switch to piece rates lifted output about 44 per cent.

To use it, check what a system actually rewards before blaming people, tie rewards to the real outcome, and build small payoffs around habits you want. Watch for shortcuts and for rewards that crowd out genuine motivation.


In the Almanac

“Paid per convict landed”, 1790 · “Safelite AutoGlass”, 1994–1995

Both stories in full, three ways to use it and where it misleads.

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Card C55

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Workbook M55

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Incentives

Questions

What is Incentives?

Incentives are the rewards and penalties that steer behavior. When Britain paid convict ship contractors per prisoner landed alive instead of per prisoner loaded, later voyages were far safer. Safelite's switch to piece rates lifted output about 44 per cent.

How do you use Incentives?

To use it, check what a system actually rewards before blaming people, tie rewards to the real outcome, and build small payoffs around habits you want. Watch for shortcuts and for rewards that crowd out genuine motivation.

When does Incentives matter?

Incentives is one of the 40 mental models for fixing problems, the situations where you ask: Why does this keep going wrong, and how do I fix it for good? Within that, it belongs to “Rewards and rules”, alongside Cap and Trade, Coase Theorem and Goodhart’s Law.

What is an example of Incentives?

Two stories show it at work: Paid per convict landed (1790) and Safelite AutoGlass (1994–1995). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.

Which mental models are related to Incentives?

Carrot and Stick, Principal-Agent Problem and Bias from Incentives. Incentives itself comes from systems.