How incentives can lead to bad behaviour

People are biased by incentives. Which can, in certain circumstance, lead to to unsavoury behaviour.

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During the time of the Soviet Union, the government invested heavily in its athletes as an emblem of Soviet pride and power.

To encourage them to strive for new personal bests, they decided to introduce a straightforward reward system. For each new record achieved they would award the athlete a sum of money.

One on-the-ball weightlifter was quick to exploit the obvious flaw in this arrangement.

He quickly set a new record and was rewarded his cash sum. As soon as he had received his bonus, he then attempted another new record.

This he easily achieved by adding a very small incremental weight on top of the record he had just set.

He repeated this a number of times before his superiors finally uncovered his cunning ploy and changed the rules.

A similar thing occurred when the Dead Sea Scrolls were first discovered in 1946.

The team of archeologists working at the site were desperate for more fragments to be found. So to encourage a behaviour of discovery amongst the locals, they offered a reward per fragment of scroll recovered.

What sounds like a good idea in principle, quickly led to inappropriate behaviour.

Before handing over any fragments, those seeking the reward would break them up into smaller pieces.

That way, they made more money.

Ironically, by encouraging more fragments to be found, the archeologists ended up creating more work for themselves and not less.

The above stories are examples of the ‘law of unintended consequences.’This is when, in taking a certain action, we end up creating a new and unintended output.

This happens because we often only take into consideration the ‘first order effect’ of our actions. i.e. its direct impact. However, every action has a consequence, and each consequence has another consequence. These ‘secondary’ consequences are known as ‘second order’ effects.

When making changes to any system, it is important to be aware of unintended consequences that might arise from not taking into account effects beyond the ‘first order.’

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