Incentive Architecture

Post 14 — What the First Posts Prove — And What's Still Ahead

Charlie Munger studied incentives all his life and still said he had underestimated them. Sixteen posts in, the same mechanism has run through a bank, a heat subsidy, a welfare transfer and a national health service. Here is what those cases establish — and what is still ahead.

Every week I take one real case — a company, a government program, a league — and show how the reward shaped the behavior. Welcome to Behavior Follows Rewards.

Sixteen posts. Five continents. Five industries. One pattern.

“I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives,” Charlie Munger said, “and all my life I’ve underestimated it.”

If you own a comp plan, a quota or a scorecard — or you work under one — this is the short version of what sixteen cases established about it: what breaks it, how it shows before anyone admits it, and what the fix looks like.

The sixteen posts have shown you why, in practice rather than in theory, across sports, medicine, education, government, and the private sector — in organizations you’ve heard of and decisions you recognize. The same mechanism, running the same way — opening a gap between what was wanted and what happened when the reward pointed away from the goal, and closing it when it pointed at it.

You don’t need a name for it to recognize it. You’ve been seeing it every post.

The Pattern in Practice

Post 0 opened with three cases: Wells Fargo’s branch employees, who were rewarded for account volume and opened more than two million accounts that may not have been authorized. A Northern Ireland heat incentive scheme that paid for fuel consumed, with no upper limit for most of its life, and produced businesses running boilers continuously in empty buildings, through the night. And a group of Haifa daycare centers that fined late-arriving parents — and watched late pickups nearly double. When the fine was removed, the lateness stayed.

Three cases, in three industries and three countries, and the mechanism running underneath each of them was identical.

Post 1 — “When the Metric Became the Mission” — showed what happened when Duolingo made AI use a measure inside its own performance reviews. The measure was a proxy for productivity. Once the proxy was attached to the reward, it became the goal. Duolingo dropped it in April 2026.

Bonus Post — “What’s Your Target?” — showed the mechanism working the other way. Every element of Egyptian squash points at the same answer, and no institution had to set it as a target. The same mechanism. The same logic. A very different outcome. More on that below.

Post 2 — “How to Win a Lawsuit and Lose a Sport” — showed the Supreme Court ruling the NCAA’s limits on education-related compensation an antitrust violation in June 2021; the NCAA opened name, image and likeness rights ten days later. A separate antitrust suit ended in a 2024 settlement that removed transfer limits, and more than 10,500 college football players across all divisions entered the portal in a single fifteen-day window. What was sought was a fairer system. What was built was a more efficient market.

Bonus Post — “A Bottle Is a Bottle” — showed Connecticut doubling its bottle deposit to ten cents. Redemption rose to 97 percent, and bottles began arriving from four nearby states. Twelve percent of Connecticut’s wholesalers absorbed $11.3 million in losses in 2025. The reward did not specify who could claim it. Our thanks again to Jim McDonough, the reader in Connecticut who brought us this one.

Post 3 showed eight badminton players disqualified at the 2012 London Olympics for trying to lose. The round-robin tournament structure had made losing the strategically rational choice for teams seeking a favorable bracket draw. They did exactly what the structure rewarded, and the structure was rewarding the wrong thing.

Post 4 showed Eddie Lampert installing an internal market at Sears. Division presidents were rewarded for unit profit and loss rather than enterprise performance. They competed against each other rather than against Sears’s competitors. Revenue fell from about $49 billion to about $16.7 billion over twelve years, and Sears filed for Chapter 11 in October 2018.

Post 5 — “Sink or Swim Together” — showed American Express replacing a bonus structure that had rewarded divisional performance and produced internal competition. CEO Stephen Squeri moved every senior executive onto a single shared scorecard. Collaboration followed.

Post 6 returned to Wells Fargo with the full account. The cross-sell target was eight products per household — “Eight is great” was the internal shorthand. Quotas. Pressure. Roughly 5,300 employees terminated for improper sales practices. An expanded internal review put the total at approximately 3.5 million potentially unauthorized accounts. The structure produced exactly what it rewarded.

Post 7 — “People Would Not Do This” — told the full Northern Ireland RHI story. A heat incentive scheme introduced in 2012 paid more per unit of fuel burned than the fuel cost. The rational response was to heat continuously — boilers running year-round in empty sheds. The government had committed more than £1 billion in future subsidy payments before the scheme closed to new applications in February 2016.

Post 8 — “You Get the Cash” — showed Brazil’s Bolsa Família program. The government attached a monthly cash transfer to school attendance, current vaccination records, and prenatal checkups. The dropout rate for recipient children fell 7.8 percentage points under the program and the one it grew out of, and among fifteen-year-old girls — the group most at risk of leaving school to work or marry — the odds of being in school rose by twenty-one percent, while extreme poverty more than halved over the program’s first decade. The behavior sought was the behavior produced.

Post 9 showed Britain’s Afghan poppy eradication program offering farmers $1,750 a hectare to destroy their crops. Farmers planted more. When destruction is the trigger for a payment, the rational response is to maximize what can be destroyed. The program paid for the behavior it was trying to eliminate.

Post 10 — “Same Farmers. Same Land. Two Years Apart.” — showed Vietnam’s Resolution 10, issued in April 1988. Farm households received fifteen-year land use contracts, and output above a set threshold became theirs to sell at market prices. Twelve months later Vietnam exported 1.4 million tonnes of rice and became the world’s third-largest exporter.

Post 11 showed the NBA spending four decades trying to stop tanking — the deliberate losing of games to secure a better draft pick. The draft lottery was introduced to discourage it. A 2017 reform that flattened the odds at the bottom made tanking rational for more teams. The league rewarded losing while hoping for competition, and in May 2026 its board of governors voted to rebuild the lottery again.

Post 12 — “Three Years. Nine Figures. No Deal.” — showed Greg Norman building LIV Golf exactly as his public mandate rewarded. From 2021 to 2023, Norman recruited marquee players — Cameron Smith for a reported $140 million, a figure since disputed — staged events across Asia, Europe and the United States, and established a rival circuit where most said none could exist. What he was asked for in public was building. Whether it could pay for itself was never in the terms. He was replaced as CEO in January 2025, and his successor said in the same announcement that there had never been a better time to unlock real financial investment. This is a live situation: the funding and the schedule have moved repeatedly, and may move again before you read this. None of that changes what Norman was rewarded for, which was building the thing rather than making it pay.

Post 13 — “Four Hours” — showed England’s NHS four-hour emergency department target. The target was designed to reduce patient waiting times, and in the years after it was introduced those times did come down. What the clock rewarded, though, was getting a patient across a threshold: ambulances idled outside hospitals rather than transfer patients, because the clock only started when a patient came through the door.

The Pattern Designed Right

Bonus Post — “What’s Your Target?” — showed what the same mechanism looks like when every element points in the right direction.

Egypt is the dominant squash nation on earth, and it holds that position because it produces the world’s best players rather than recruiting them. Access, coaching, competition structure, culture and pathway all point the same way, and one Egyptian coach says that if you ask the juniors he trains what their target is, every one of them answers World Champion. No institution set that as a target. The structure produces it anyway.

Egypt’s top coaches are former elite players who chose to stay, so the knowledge does not leave the system when a player retires. The junior pipeline runs deep enough that the same coach describes a single under-11 age division drawing more than 550 entrants. The country has produced the top-ranked men’s and women’s players simultaneously. At the 2026 World Championships in Giza both finals were all-Egyptian, for the second year running.

Inside a company, Post 5 showed the same thing. Stephen Squeri, CEO of American Express, inherited a bonus structure that rewarded divisional executives for unit performance — which made competing against each other the rational choice. He replaced it with a single shared scorecard tied to enterprise results. The incentive that had been producing internal competition began producing collaboration instead. The behavior followed the structure.

Post 8 found it in a national welfare program. Brazil’s Bolsa Família paid cash transfers to poor families on conditions: keep the children in school, keep their vaccinations current, attend prenatal checkups. The structure made the desired behavior worth doing. School enrollment rose. Vaccination rates improved. The reward produced exactly what it was designed to produce.

Post 10 is the same story, with rice. After decades of collective farming in Vietnam, the government changed what a farm household got to keep: output above a set quota was theirs, to sell at market prices. The same land, the same farmers, the same climate, with better irrigation helping in some provinces. Vietnam went from an emergency food aid appeal in 1988 to the world’s third-largest rice exporter in 1989.

Egypt, American Express, Brazil and Vietnam are four cases on four continents, and the pattern in each is the same. When the structure rewards the right behavior, that behavior follows — not as an aspiration but as a result. There is a word for it: inevitable.

That word — inevitable — is the point of the entire series. When the structure is misaligned, the wrong behavior is not a surprise either. It is just as inevitable. It is the predicted output of the architecture that was built.

This is worth stopping on for a moment. Sixteen posts, five continents, five industries, one mechanism running in both directions — toward failure when the reward points the wrong way, toward the intended result when it points the right one. That symmetry is the actual argument of this publication, more than any single case in it.

What the Pattern Means

In 1975, a management scholar named Steven Kerr published a paper called “On the Folly of Rewarding A, While Hoping for B.” He documented the same pattern across politics, the military, medicine, orphanages, universities and business. Most of what he found was not failure of character or poor leadership. He was describing the structural, predictable output of organizations that had built incentive architectures pointing in one direction while hoping for behavior in another.

He documented it in 1975. The cases in this series show it is still running.

Behavior Follows Rewards. The pattern shows up wherever people are measured and rewarded.

Ask yourself: Does the structure you’ve built produce the behavior you actually need — or does it reward something else, and hope for the rest?

You’ve read sixteen of these. At least one of them landed — the mechanism doesn’t care what industry you’re in. If you already know where it’s showing up in yours, Advisory Services is where we do something about it.

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—Wayne

Going Deeper

Sixteen posts. Different countries, different industries, different eras. Each time you read one — did the system look broken? Or did it look like people doing exactly what they were paid to do?