perverse incentive
Reward backfires badly
A perverse incentive is a reward structure that produces unintended and undesirable outcomes—typically the opposite of what was intended.
When a city offers bounties for dead rats, people breed rats.
When hospitals are penalized for patient deaths, they avoid treating the sickest patients.
The incentive technically works as designed but creates behavior that undermines the original goal.
Also called a cobra effect, from a colonial-era bounty that allegedly caused Indians to raise cobras for the reward.
- counterproductiveHindering intended outcome
- maladaptiveHarmful to one's wellbeing
- adverse selectionPre-contract hidden knowledge problem
- rent-seekingGaining through system manipulation
- unintended consequencesUnanticipated outcomes of actions
law of unintended consequences · market failure · race to the bottom · dysfunction · behavior · short-term thinking · economy · externalities · backfire · counterintuitive · gaming the system · consequence · corruption · moral hazard · free-rider problem · bribe · pay for performance · cognitive bias
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