Economist John Cochran tells of learning how incentives influence people when he was living in Italy with his parents. The province of Tuscany was overrun with vipers. So, the government declared that residents who caught and brought in these little snakes would be rewarded with 10 lira (about one US dollar) for each one. So the local populace went on the hunt and brought in hundreds of them. But . . . local farmers started breeding them and then turning them in for the reward.
It continually surprises me how companies, governments and individuals fail to think through the possible downstream ways of how people might react to incentives placed before them. It is human nature to look for ways to turn any situation to personal advantage. As a result, organizations cumulatively lose billions of dollars per year attempting to manipulate customers and constituents in a particular manner.
Some of those offering these incentives complain how people are violating the “spirit” of the incentive. “That’s not fair!” they might say. But fairness really doesn’t have anything to do with it. Given a different situation, they might try to game the system themselves.
I learned this lesson as a first-year business owner. The first Thanksgiving, I bought everyone a turkey. The next year, of course, they were all expecting not just a Turkey, but the fixings. Chances are, you can tell a story or two about making the same kind of mistake. Yet we can all get caught up in the new new idea for increasing sales, getting people to sign up or manipulating them in some other way.
The same principle is true when issuing regulations and parameters. When I was teaching college, I had a student turn in a paper with three references listed at the end. Problem was, the references he cited had nothing whatsoever to do with the paper. When I pointed this out, he said, “The syllabus said the paper had to contain three references. It didn’t say they had to be connected to the paper. So I just pasted three references from a previous paper to the end.” I went back to my office and updated the syllabus for the next semester.
Of course, there are ways to anticipate how some people might react. One business owner told me that when he is considering new rules and incentives, he buys a pizza lunch for three people in his organization he knows are good at working the system. His instructions to them are simple. “Review this proposed regulation or incentive and find all the loopholes and work-arounds it so we can close them beforehand.”
We don’t make most decisions in isolation. Therefore, it is critical that we anticipate how those affected by them will respond. Take a step back right now and think how one of your upcoming decisions might be gamed by those affected. What can you do to adjust? Put your thoughts in the comments below.