Incentives: The Hidden Forces That Shape Behavior

Variable-ratio schedules are unpredictable because the number of responses between reinforcers varies. Telemarketers, salespeople, and slot machine players are on this schedule because they never know when the next sale or the next big win will occur.

Fixed-ratio schedules are used when you pay your employees based on the amount of work they do. Fixed-ratio schedules are common in freelancing, where contractors are paid on a piecework basis. Managers like fixed-ratio schedules because the response to reinforcement is usually very high (if you want to get paid, you do the work).

Culture plays an important role in determining effective reinforcers. And what’s reinforced shapes culture. Offering tickets to a cricket match might serve as a powerful reward for someone in a country where cricket is a big deal, but would be meaningless to most Americans. Similarly, an air-conditioned office might be a powerful incentive for empl... See more

Munger cites FedEx as one of his favorite examples on the power of incentives:  The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in one central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had one hell of a time getting the t... See more