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The Joys of Compounding by Gautam Baid

Power Of Incentives

One should never underestimate the Power of Incentives.

 

This demonstrates how the interaction of multiple behavioral biases leads to extreme, irrational outcomes. Financial incentives include prestige, freedom, time, titles, power, and admiration. All of these are strong inducements. 
According to Munger, few forces are more powerful, than incentives:


 "Anytime you create large differences in commissions where the guy gets X percent for selling A, which is some mundane security, and ten times X for selling B, which is something toxic, you know what's going to happen."

 

Because incentive-caused bias occurs automatically and subconsciously, you may be led to believe that what is good for you is also suitable for the client.

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