While incentives matter.............................

 ". . . improvements come from reexamining the details of how work is done, not just from cost controls or incentives."

-Richard P. Rumelt, Good Strategy Bad Strategy:  The Difference and Why It Matters

Historically misunderstood..............

     By any measure, Edison was a true genius, a towering figure in nineteenth-century innovation.  But as the story of the lightbulb makes clear, we have historically misunderstood that genius.  His greatest achievement may have been the way he figured out how to make teams creative:  assembling diverse skills in a work environment that valued experimentation and accepted failure, incentivizing the group with financial rewards that were aligned with the overall success of the organization, and building on ideas that originated elsewhere.  "I am not overly impressed by the great names and reputations of those who might be trying to beat me to an invention. . . . It's their 'ideas' that appeal to me,"  Edison famously said.  "I am quite correctly described as "more of a sponge than an inventor."

-Steven Johnson,  How We Got to Now:  Six Innovations That Made the Modern World

But, incentives matter the most........

"The correct answer in economics generally is, before we look at all of the details, 'it depends'."

-Tim Worstall, as taken from here

   via

Good luck with this...................

" . . . advance the goals of “deliberative democracy” by incentivizing people to be flexible belief updaters whose views converge in response to facts, thus depolarizing unnecessarily polarized debates."

-as culled from here

Interesting excerpts found while...............

.........................wandering through the Intertunnel thicket:

Legislation often backfires because the majority of congressmen are lawyers who try to fix most things through imposing procedures and regulations rather than altering incentives. These lawyer-legislators prefer to force the sinner to repent rather than making virtue more attractive. Perhaps they ignore incentives, since in their careers, they have experienced only two: bill more hours and get reelected.

The SEC believes that “sunlight is the best disinfectant”–disclosure is the cure for everything from insider trading to cancer. Had they hired a few gardeners to complement their staff of brilliant lawyers, they might have learned that sunshine also makes weeds grow. As the SEC required more disclosure about CEO pay, pay increased relentlessly because more disclosure made it easier for everyone to know what everyone else was making–and to leapfrog to the next higher level.

source is here

Just my observation..................

...........................................but systems frequently get gamed.   Something about human nature.  Always remember - the one unbreakable law is the law of unintended consequences.  Ben Carlson is on the case.  A wee excerpt here:

Incentives drive the world in many ways so getting the right compensation system in place can have a huge impact on people’s actions. Measurement can help an organization better achieve its goals but it can also lead to unintended consequences. Performance bonuses or fees are typically seen as aligning interests of all parties involved but there are downsides when the wrong measures are used.

"inconceivable stupidity"..................Part two

     No doubt there were bankers who were indeed wicked and central bankers who were incompetent, though the vast majority of both whom I met during the crisis were neither.  It would be both arrogant and complacent to assume all the problems generated in money and banking arose because our predecessors, let alone our contemporaries, fell prey to "inconceivable stupidity".  Rather, like everyone else, they naturally responded to the incentives they faced.  As individuals, they tried to behave in what they saw as a rational manner, but the collective outcome was disastrous.  Because they could not affect the behavior of others, all the key actors in the drama were understandably acting in their own self-interest  ... After the event it may seem easy to see how the crisis could have been avoided by some set of actions, but no one at the time had any incentive to take them.

-Mervyn King,  The End of Alchemy:  Money, Banking, and the Future of the Global Economy

On being careful what you wish for.................

"Incentives are a huge driver of people’s actions but happiness is not always as easy as putting a carrot on a stick. You have to have the right carrot."


-Ben Carlson, as excerpted from this post on pursuing the right goals

I have my favorite authors............

.....................and Michael Lewis is one of them.  I tend to read whatever he writes.  This time it is a book review.  The hero of his tale is Mervyn King, both the past governor of the Bank of England and Lewis's tutor at the London School of Economics.  The book King wrote is The End of Alchemy:  Money, Banking, and the Future of the Global Economy.

Two excerpts from Lewis's review:

King’s starting point is that the 2008 crisis wasn’t an anomaly but the natural consequence of bad incentives that are still baked into money and banking -- and so quite likely to create another, possibly even greater, crisis. 

The financial system, King reveals, is still wired so that a handful of well-connected people capture the benefits from risk-taking while the entire society bears the cost. 

An excerpt from The End of Alchemy:

“Regulation has become extraordinarily complex, and in ways that do not go to the heart of the problem. … The objective of detail in regulation is to bring clarity, not to leave regulators and regulated alike uncertain about the current state of the law. Much of the complexity reflects pressure from financial firms. By encouraging a culture in which compliance with detailed regulation is a defense against a charge of wrongdoing, bankers and regulators have colluded in a self-defeating spiral of complexity.”

thanks barry

Incentives..............................

"To take from anyone the incentive to work is a questionable service."
-A. P. Giannini

Rules........................

"Perhaps the most important rule in management is 'Get the incentives right.'"
-Charles T. Munger, as excerpted from The Psychology of Human Misjudgment