Incentives
nicole and
Incentives
The rabbit runs faster than the fox, because the rabbit is running for his life while the fox is only running for his dinner
Richard Dawkins • The Selfish Gene
One thing I didn’t realize until later in life is how the incentives of an industry shape your mood, your outlook, and even your character. In early stage investing, the incentives reward optimists, so it literally pays to keep an optimistic outlook. In journalism, the opposite is true. In law, the incentives often reward finding the flaw or the... See more
Katherine Boylex.com
Incentives are everything.
You hire a contractor to fix your house, his incentive is to waste your money while yours isn't. You hire a financial advisor, her incentive is to get more fees. You get an investment advisor, they also want to get fees, plus a cut of the profits.
This is the principal agent problem, where the agent knows how to do something and often knows more, and you have to figure out how to trust them. Often, the biggest worry is getting ripped off, because the agents don’t mind if you lose your money or if you lose your floorboards, as the way they get paid is weighted towards the upside. The agents have a floor in terms of downside exposure, while principals like you want to be more prudent with money.
33% of British criminals were dying en route to Australia in the 1700s.
Britain switched from paying sea captains for every passenger who walked on the ship to paying them for every passenger who walked off. Immediately, the survival rate shot up to 99%.
Britain switched from paying sea captains for every passenger who walked on the ship to paying them for every passenger who walked off. Immediately, the survival rate shot up to 99%.
Tackle the Monkey First:
"Let’s say you’re trying to teach a monkey how to recite Shakespeare while on a pedestal. How should you allocate your time and money between training the monkey and building the pedestal? The right answer, of course, is to spend zero time thinking about the pedestal. But I bet at least a... See more
Incentives Drive Behaviour:
- Lawyers always want another revision (paid $500/hr)
- Realtors always want to close a sub-par deal (2% fee means a $20,000 more for you isn't worth it for them)
- Wealth Managers will always push for the structure that pays them the most - usually more raw dollars (they get paid on AUM + additional trade fees, not
... See more