── ── Mental model

Incentive Design

Behavior follows incentives more reliably than character, intent, or training. Get the incentives right and mediocre operators produce excellent results; get them wrong and talented teams produce dysfunction. This is Charlie Munger's "Reward and Punishment Superresponse Tendency" — his first and most important of 25 psychological tendencies (1995 Harvard Law School lecture). The operational question: when behavior is undesirable, ask…

How it works

Step 1 — Goal and actors: desired outcome · required behavior · actors · time horizon. Step 2 — Map current incentives: rewards (financial, status, autonomy) · penalties · timing · observability. Step 3 — Diagnose alignment gap: what behavior do current incentives rationally produce? where's the mismatch (metric, magnitude, timing)? Step 4 — Design new structure (7-item checklist): (1) alignment (2) measurability (3) timing (4) threshold structure (5) anti-gaming predictions (6) long-short balance (7) tampering defense. Step 5 — Anticipate Goodhart's Law: whatever you incentivize will be optimized — map the most-likely gaming pattern and close it. Step 6 — Implement and monitor: pilot first · monitor 3-6 months · review cycle every 6-12 months · build in actor feedback.

When to use it

• user asks why a team keeps doing the wrong thing despite training
• user is designing compensation, bonuses, or commissions
• user says 'people are gaming the metric' or 'our OKRs aren't working'
• user wants to fix a performance management system
• user asks what incentives are driving a behavior
• user is drafting contracts or platform rules to shape behavior

Worked example

Munger 1995 + FedEx + Modern Applications

Charlie Munger's 1995 Harvard Law School lecture "The Psychology of Human Misjudgment" was Munger's distillation of 50+ years of business observation into 25 psychological tendencies that explain human behavior. He listed "Reward and Punishment Superresponse Tendency" first, calling it "the most important thing I have to teach you."