The deliberate design of reward structures to produce specific behaviors.
Incentive Architecture
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.
Incentive Architecture
England set a four-hour clock on emergency care and paid hospitals for meeting it. Patients were moved to short-stay units because the transfer stopped the clock, ambulances were held outside, and completed cases spiked in the last twenty minutes. Compliance reached 97.7 percent.
Incentive Architecture
Three years, a reported nine-figure signature, and a golf league most people said could not be built. Everything the 2021 announcement described as the work, Greg Norman delivered. The league still needed something nobody had asked him for in public.
Incentive Architecture
In 1984, NBA Commissioner David Stern announced a fix for tanking. Teams found a way to game it. The NBA has rewritten the rule four times since, and teams gamed every version that has been played. The newest takes effect next season.
Incentive Architecture
In 1988 Vietnam appealed for emergency food aid. In 1989 it exported 1.4 million tonnes of rice and stood third in the world. Resolution 10 had given farm households fifteen-year land contracts and let them keep and sell everything above a threshold.
Incentive Architecture
Britain offered Afghan farmers money to destroy their poppy crops. The reward created a reason to grow more. Everything that followed made it worse.
Incentive Architecture
Brazil wanted children in school. It paid families when they went. The children went. This is what a reward structure looks like when the incentive and the outcome point in the same direction.
Incentive Architecture
What do you call it when the system works exactly as designed?
Incentive Architecture
Eight products per household was the target. Branch staff were measured on accounts opened, tracked daily, with bonuses for hitting the number. Two million accounts were opened that nobody had asked for.
Incentive Architecture
Every year, Amex’s senior executives arrived at bonus season prepared to compete — for capital, recognition, a bigger share. They competed hard. The competition was with each other.
Incentive Architecture
Eddie Lampert believed free markets make companies efficient. So he built one inside Sears — 30 autonomous business units, each competing for the same resources, each with its own P&L. He was right that it would work. He was wrong about what “working” would produce.
Incentive Architecture
On a July night in London, spectators watched Olympic athletes serve into the net on purpose. Eight players were disqualified for it. The tournament format had made losing the rational thing to do.