They pretend to pay us and we pretend to work. !!

 If you would persuade, appeal to interest and not to reason.

—Benjamin Franklin

I place this tendency first in my discussion because almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior. But this is not often so. For instance, I think I’ve been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I’ve always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower.

One of my favorite cases about the power of incentives is the Federal Express case. The integrity of the Federal Express system requires that all packages be shifted rapidly among airplanes in one central airport each night. And the system has no integrity for the customers if the night work shift can’t accomplish its assignment fast. And Federal Express had one hell of a time getting the night shift to do the right thing. They tried moral suasion. They tried everything in the world without luck. And, finally, somebody got the happy thought that it was foolish to pay the night shift by the hour when what the employer wanted was not maximized billable hours of employee service but fault-free, rapid performance of a particular task. Maybe, this person thought, if they paid the employees per shift and let all night shift employees go home when all the planes were loaded, the system would work better. And, lo and behold, that solution worked.

Early in the history of Xerox, Joe Wilson, who was then in the government, had a similar experience. He had to go back to Xerox because he couldn’t understand why its new machine was selling so poorly in relation to its older and inferior machine. When he got back to Xerox, he found out that the commission arrangement with the salesmen gave a large and perverse incentive to push the inferior machine on customers, who deserved a better result.

And then there is the case of Mark Twain’s cat that, after a bad experience with a hot stove, never again sat on a hot stove, or a cold stove either.

We should also heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard’s Almanack: "If you would persuade, appeal to interest and not to reason." This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives. I once saw a very smart house counsel for a major investment bank lose his job, with no moral fault, because he ignored the lesson in this maxim of Franklin. This counsel failed to persuade his client because he told him his moral duty, as correctly conceived by the counsel, without also telling the client in vivid terms that he was very likely to be clobbered to smithereens if he didn’t behave as his counsel recommended. As a result, both client and counsel lost their careers. We should also remember how a foolish and willful ignorance of the superpower of rewards caused Soviet communists to get their final result as described by one employee: "They pretend to pay us and we pretend to work." Perhaps the most important rule in management is "Get the incentives right." 

But there is some limit to a desirable emphasis on incentive superpower. One case of excess emphasis happened at Harvard, where B. F. Skinner, a psychology professor, finally made himself ridiculous. At one time, Skinner may have been the best-known psychology professor in the world. He partly deserved his peak reputation because his early experiments using rats and pigeons were ingenious, and his results were both counter- intuitive and important. With incentives, he could cause more behavior change, culminating in conditioned reflexes in his rats and pigeons, than he could in any other way. He made obvious the extreme stupidity, in dealing with children or employees, of rewarding behavior one didn’t want more of. Using food rewards, he even caused strong superstitions, predesigned by himself, in his pigeons. He demonstrated again and again a great recurring, generalized behavioral algorithm in nature: "Repeat behavior that works." He also demonstrated that prompt rewards worked much better than delayed rewards in changing and maintaining behavior. And, once his rats and pigeons had conditioned reflexes, caused by food rewards, he found what withdrawal pattern of rewards kept the reflexive behavior longest in place: random distribution. With this result, Skinner thought he had pretty well explained man’s misgambling compulsion whereunder he often foolishly proceeds to ruin. But, as we shall later see when we discuss other psychological tendencies that contribute to misgambling compulsion, he was only partly right. Later, Skinner lost most of his personal reputation by overclaiming for incentive superpower to the point of thinking he could create a human utopia with it and by displaying hardly any recognition of the power of the rest of psychology. He thus behaved like one of Jacob Viner’s truffle hounds as he tried to explain everything with incentive effects. Nonetheless, Skinner was right in his main idea: Incentives are superpowers. The outcome of his basic experiments will always remain in high repute in the annals of experimental science. And his method of monomaniacal reliance on rewards, for many decades after his death, did more good than anything else in improving autistic children. 

When I was at Harvard Law School, the professors sometimes talked about an overfocused, Skinner-like professor at Yale Law School. They used to say: "Poor old Eddie Blanchard, he thinks declaratory judgments will cure cancer." Well, that’s the way Skinner got with his very extreme emphasis on incentive superpower. I always call the "Johnny-one-note"

turn of mind that eventually diminished Skinner’s reputation the man- with-a-hammer tendency, after the folk saying: "To a man with only a hammer every problem looks pretty much like a nail." Man-with-a- hammer tendency does not exempt smart people like Blanchard and Skinner. And it won’t exempt you if you don’t watch out. I will return to man-with- a-hammer tendency at various times in this talk because, fortunately, there are effective anti-dotes that reduce the ravages of what pretty much ruined the personal reputation of the brilliant Skinner. One of the most important consequences of incentive superpower is what I call "incentive caused bias." A man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and sub-consciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior,

like the salesmen at Xerox who harmed customers in order to maximize their sales commissions.

Here, my early education involved a surgeon who over the years sent bushel baskets full of normal gall bladders down to the pathology lab in the leading hospital in Lincoln, Nebraska, my grandfather’s town. And, with that permissive quality control for which community hospitals are famous, many years after this surgeon should’ve been removed from the medical staff, he was. One of the doctors who participated in the removal was a family friend, and I asked him: "Did this surgeon think, `Here’s a way for me to exercise my talents’" – this guy was very skilled technically – "‘and make a high living by doing a few maimings and murders every year in the course of routine fraud?’" And my friend answered: "Hell no, Charlie. He thought that the gall bladder was the source of all medical evil, and, if you really loved your patients, you couldn’t get that organ out rapidly enough." Now that’s an extreme case, but in lesser strength, the cognitive drift of that surgeon is present in every profession and in every human being. And it causes perfectly terrible behavior. Consider the presentations of brokers selling commercial real estate and businesses. I’ve never seen one that I thought was even within hailing distance of objective truth. In my long life, 

I have never seen a management consultant’s report that didn’t end with the same advice: "This problem needs more management consulting services." Widespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one’s professional advisor, even if he is an engineer. The general antidotes here are:

1. especially fear professional advice when it is especially good for the advisor;

2. learn and use the basic elements of your advisor’s trade as you deal with your advisor; and

3. double check, disbelieve, or replace much of what you’re told, to the degree that seems appropriate after objective thought.