Incentives & Outcomes

“SHOW ME THE INCENTIVES AND I WILL SHOW YOU THE OUTCOME.”
– Charlie Munger 📝
I love this quote about how incentives drive nearly everything.

In Vietnam 🇻🇳, under French colonial rule, there was a rat 🐀problem. To solve the rat infestation, the French offered a bounty 💲on rats, which could be collected by delivering a rat’s tail as proof of murder. Many bounties were paid out, but the rat problem didn’t improve 🧐
🪖Officials soon noticed rats running around without tails–people were cutting off the tails and releasing the rats to breed, so as to increase the pool of potential bounty revenue for themselves 🤓

Unknowingly, they have fallen for the phenomenon known as GOODHART’S LAW 👨🏻

✍️“WHEN A MEASURE BECOMES A TARGET, IT CEASES TO BE A GOOD MEASURE.”
In other words, when we set one specific goal, people will tend to optimize for that objective regardless of the consequences.

💡One of the first steps in solving a problem is determining the right measure to gauge success. When we want to objectively find the best solution, we should recall the concept of Goodhart’s Law and realize that rather than using a single number, THE BEST ASSESSMENT IS USUALLY A SET OF MEASUREMENTS 🔝

🏆 By choosing multiple metrics, we can design a solution without the unintended consequences that occur when optimizing for a narrow objective‼️