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Another generalised consequence of incentive-caused bias is that man tends to ‘game’ all human systems, often displaying great ingenuity in wrongly serving himself at the expense of others. Anti-gaming features, therefore, constitute a huge and necessary part of almost all system design. – Charlie Munger
Sport is a rubbish metaphor for life.
But we insist on using it – because it seems like sports is clean and simple – you have teams, there are rules they play, someone wins.
And it’s all good sportsmanship.
Sportspersonship?
But have you noticed that the concept of a fair game seems alien to humans?
If it were natural – if policing our own behaviour to be fair and true were an inherent part of our nature – why would we need referees?
The reality, I think, is that most games bring out the worst in us – we just don’t notice because we’re too busy explaining away our behaviour as justified because it will help us win.
Now, what’s interesting is that behaviour – that tendency to cheat to win – carries over into everything else we do as well.
And it gets harder to resist the urge to cheat when we get rewarded for doing so.
Here’s the thing.
If someone gives you a ball and points to a basket, then it’s clear where they want you to shoot.
If they pay you for every ball you get through the hoop – but aren’t careful to specify how you should do it then what are you going to do?
Some people might stand there and shoot, being rewarded on the basis of their steadily improving skill.
Others will realise that there is a much easier way to get the money and go and find a step ladder.
This is not cynicism – it’s how the world works.
And that’s why incentive systems are so hard to get right.
Sales is probably the best example of where it’s hard to figure out what you should do.
If you pay your sales people a salary, why should they hustle?
If you pay them only on commission, then they need to shift things fast – even if that means pressuring customers and taking liberties with the truth.
But then again, maybe you don’t care as long as the money is coming in – you have your own incentives to act in one way or the other.
Then again, maybe we do have something to learn from sports about this whole thing.
We think that sports is about playing well.
But it’s actually about the way you try and have a good, clean game.
By having rules for how you should play and penalties when you break the rules.
If you really want to understand how to create incentives – study the rules and see how they have been created to deal with something that caused a problem in the past.
“Play the ball, not the man” – probably has something to do with the fact that some bright spark realised that the best way to win was to break the leg of the best player on the opposite team.
If you have to work with someone else – a sales person, a business partner, your children – think of the ways in which they will break the rules.
The first thing to remember is that the easiest rules to break are the ones that aren’t written down.
The next easiest are the ones that can be interpreted differently, depending on the argument you put forward.
A well known form of this is the Protagoras paradox.
Protagoras, a lawyer, took on a student, Euathlus, on the agreement that the student would pay the teacher when he won his first case.
When the student didn’t pay, the lawyer took him to court.
He reasoned that if he lost, the student would have won his first case, and would have to pay. And if he won, the student would still have to pay.
The student reasoned that if he lost the case, he would not have won and so would not have to pay, while if he won he still wouldn’t have to pay.
One way to work is to play with very clear rules and a small chance of loss with people you don’t know.
Make bigger bets only with people you know and trust – while avoiding being sucked into a long con by someone who sounds like they are a friend but is essentially working on getting money out of you.
But I suppose the single best rule before you work with someone else is this.
Make it your business to understand their business before you do any business.
Cheers,
Karthik Suresh
Handcrafted insight 