“Never, ever, think about something else when you should be thinking about the power of incentives.” Charlie Munger
Both Warren Buffet and Charlie Munger extensively use and have strong feelings about incentives. Every business leader would be wise to learn them.
The following are excerpts from a very interesting article on incentives from the Farnum Street website. https://www.fs.blog/2017/10/bias-incentives-reinforcement/
- “Well, I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.” CM
- Sometimes the solution to a behavior problem is simply to revisit incentives and make sure they align with the desired goal.
- We can turn to psychology to obtain a more structured and thorough understanding of how incentives shape our actions. (Thanks to the fs.blog for sharing several simple psychological reasons for why incentives are so powerful.)
- (And, on a cautionary note,) “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.” CM
Find more wisdom (and some wit) at: https://www.fs.blog