Incentive-Caused Bias

Behavioral PsychologyDecision MakingEconomics

Incentive-Caused Bias occurs when individuals are influenced by their incentives, leading to biased decisions or actions.

Introduction

Incentive-Caused Bias occurs when individuals are influenced by their incentives, leading to biased decisions or actions.

Core Principles

  1. Alignment of Interests: Incentives shape behavior and motivations.
  2. Unintended Consequences: Misaligned incentives can produce undesirable outcomes.
  3. Critical Awareness: Recognizing biases to mitigate their effects.

Applications

  • Corporate governance for designing fair compensation structures.
  • Policy-making to avoid perverse incentives.

Related Resources

  • Book: "Poor Charlie’s Almanack" by Charlie Munger.
  • Tools: Behavioral analytics software.

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