“The Psychology of Human Misjudgment”

A good incentives officer can also save money. He or she can identify wasteful bonuses (for example, the free-rider earnings bonus mentioned above) and tap into the power of nonfinancial rewards: peer recognition, reduced commute times, choice of assignments, freedom to work on a passion project, and so on.

The problem with principal-agent, or incentives, theory is that there are powerful anomalies that it cannot explain. For example, some of the hardest-working people on the planet are employed in nonprofits and charitable organizations. Some work in the most difficult conditions imaginable—disaster recovery zones, countries gripped by famine and flo

Incentives are the cornerstone of modern life. And understanding them—or, often, deciphering them—is the key to understanding a problem, and how it might be solved.