INSIGHTS
Ideas worth thinking about
ECONOMICS OF EVERYDAY LIFE
What economics can teach us about the choices we make, the value we assign, and the lives we build.
Incentives: People Do What We Reward
We often say we want one thing.
And then reward something else.
We tell employees to collaborate, then praise the person who works longest hours.
We tell people to speak up, then make the person who raises difficult questions uncomfortable.
We say quality matters, then measure people primarily by speed.
We tell children to be curious, then reward them mainly for getting the right answers.
We say we want people to take ownership, then punish every mistake they make.
And then we wonder why people behave the way they do.
Economics has a rather straightforward explanation:
People respond to incentives.
An incentive is something that encourages or discourages a particular behaviour.
It can be financial.
A bonus.
A commission.
A discount.
A salary increase.
But incentives don’t have to involve money.
Recognition is an incentive.
Status is an incentive.
Convenience is an incentive.
Security is an incentive.
Avoiding embarrassment is an incentive.
So is avoiding punishment.
Sometimes, simply making something easier can be an incentive.
The interesting part is that incentives don’t care what we say we value.
They respond to what is actually rewarded.
Imagine a company saying:
“We value work-life balance.”
But promotions consistently go to people who answer emails at midnight.
The official message says one thing.
The incentive says another.
People notice.
And eventually, behaviour follows the incentive.
This is why organisational culture is often revealed less by what is written on the wall and more by what happens to the people who behave according to the stated values.
Incentives can be powerful.
They can help people make better choices.
A financial reward can encourage sales.
A discount can encourage customers to buy.
A deadline can encourage action.
Recognition can encourage contribution.
A clear consequence can discourage harmful behaviour.
Good incentives can align individual behaviour with a larger goal.
But incentives can also produce exactly the behaviour we didn’t intend.
And that is where things get interesting.
Because people optimise.
Give someone a target and, quite reasonably, they try to achieve it.
But what happens when the target becomes more important than the purpose behind it?
Measure customer-service staff by the number of calls they complete, and calls may become shorter.
Measure salespeople purely by sales volume, and they may focus on closing rather than whether the product is genuinely appropriate.
Measure employees by hours spent at their desks, and you may create presenteeism rather than productivity.
The target is achieved.
The actual objective may not be.
Economics has a useful lesson here:
If you reward the metric, don’t be surprised when people optimise the metric.
This happens outside organisations too.
Consider exercise.
If the only goal is the number on the weighing scale, someone may choose behaviour that produces a quick change rather than healthier long-term habits.
Consider education.
If the reward is purely the grade, students may optimise for the exam rather than learning.
Consider social media.
If attention is rewarded with likes, views and followers, people have an incentive to create content that attracts attention.
And attention is not the same thing as value.
Sometimes the system doesn’t reward what is good.
It rewards what is visible, measurable or immediately rewarded.
That distinction matters.
There is another kind of incentive we don’t talk about enough.
The incentive to do nothing.
Sometimes people don’t act because action carries a greater cost than inaction.
If speaking up risks embarrassment, silence becomes attractive.
If admitting a mistake risks punishment, hiding it becomes attractive.
If trying something new creates the possibility of failure while staying where you are feels safe, staying put can become the rational choice.
We sometimes call this a lack of motivation.
But perhaps the person is responding perfectly rationally to the incentives around them.
Why would I take a risk if the downside belongs to me and the upside belongs to someone else?
That’s not necessarily laziness.
It may be a badly designed system.
Which brings us to leadership.
Leaders often think their job is to tell people what matters.
But people pay attention to something else:
What happens?
What gets rewarded?
What gets promoted?
What gets tolerated?
What gets challenged?
What gets ignored?
What gets celebrated?
What gets punished?
Those are incentives too.
And they communicate far more powerfully than a values statement.
If you want people to collaborate, reward collaboration.
If you want people to think, make it safe to question.
If you want ownership, allow people to make decisions.
If you want innovation, don’t punish every failed experiment.
If you want ethical behaviour, don’t create targets that make unethical behaviour the easiest way to succeed.
People listen to what you say. They learn from what you reward.
And suddenly present bias becomes more complicated.
The immediate reward may not even be happiness.
Sometimes it is simply the removal of discomfort.
Avoiding something unpleasant feels good now.
Unfortunately, the unpleasant thing doesn’t disappear.
It simply becomes tomorrow’s problem.
We can ask ourselves:
What am I rewarding in my own life?
Every time we avoid something difficult, we receive immediate relief.
That relief can become an incentive to avoid it again.
Every time we procrastinate and then manage to finish at the last minute, we may accidentally teach ourselves that procrastination works.
Every time we say yes to everyone and receive approval, we reinforce the behaviour—even when it exhausts us.
Every time we choose comfort over something meaningful, we make comfort slightly easier to choose next time.
Our behaviour is being shaped too.
Sometimes, without us even noticing.
So perhaps the question isn’t simply:
“What do I want people to do?”
Or even:
“What do I want myself to do?”
A better question might be:
“What am I rewarding – and what behaviour is that likely to create?”
Because intentions are not incentives.
Values are not incentives.
Words are not incentives.
Consequences are.
And if we don’t design them carefully, we may end up getting exactly what we reward, rather than what we intended.
– Insights by Norra Ismail
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