Find the Incentive
Show me the incentive and I'll show you the outcome.
When you're puzzled by someone's behaviour — a decision that seems irrational, a pattern that doesn't make sense — stop analysing their reasoning and ask instead: What is this person rewarded for? What are they penalised for? Write both down. The behaviour almost always follows the incentive, not the logic.
Someone's actions seem irrational, a system is producing bad outcomes despite smart people, or an organisation keeps making the same mistake.
The behaviour is genuinely random or driven by factors that have nothing to do with incentives.
Why it works
Behaviour follows incentives more reliably than it follows intentions, values, or intelligence. When the incentive structure is misaligned, smart people will reliably produce bad outcomes — not because they're wrong, but because they're responding rationally to what's being measured.
When a system produces bad outcomes despite being staffed by smart, well-intentioned people, the problem is almost never the people. It’s the incentive structure. Salespeople who are rewarded for closing deals will close bad deals. Doctors paid per procedure will recommend more procedures. Managers measured on short-term metrics will sacrifice long-term health. None of these people are evil — they’re rational actors responding to what’s being measured and rewarded. This is the single most explanatory model for organisational dysfunction. Before you diagnose a culture problem, a leadership problem, or a competence problem, check the incentives. If the incentives point toward the behaviour you’re seeing, you’ve found your answer.