incentive-design
Incentive Design
Overview
Behavior follows incentives more reliably than character, intent, or training. Get the incentives right and mediocre operators produce excellent results; get them wrong and talented teams produce dysfunction. This is Charlie Munger's "Reward and Punishment Superresponse Tendency" — his first and most important of 25 psychological tendencies (1995 Harvard Law School lecture). The operational question: when behavior is undesirable, ask "what incentive makes this rational?" before asking "what's wrong with these people?"
Composes with principal-agent, goodharts-law, signaling-games, okr-goal-setting, prisoners-dilemma.
When to Use
- Designing compensation, bonuses, commissions, OKRs, or performance management
- Diagnosing why a team is producing undesirable behavior despite training or management
- Drafting contracts, regulations, or platform rules where behavior must be shaped
- Evaluating an existing system for hidden perverse incentives
- Designing reward signals or pricing in AI-native products (RLHF/reward hacking, usage-based vs outcome-based pricing, scarce AI-talent comp amid heavy AI capex and fast AI adoption)
Not when: clearly individual misconduct unrelated to systemic incentives; using incentive framing to excuse deliberate bad-faith behavior.