| Microeconomic analysis: - Suppose you have a project worth $10,000 to you in some intangible form if successful, with a 20% chance of success. You use a penalty site to pay $2,000 if you make no progress. You set this high enough to put some non-productive entertainment out of your budget. Your hope is that when evaluating what you want to do, entertainment goes from being "$20" to "$20 plus $2,000 penalty". In your thinking, this promotes work on the project! You will not actually have to pay the penalty, since you intend to work on the project. You hope to influence yourself to increase your happiness by an intangible $2,000 (expected value of $10k * 20%) for free, by manually pricing entertainment out of your budget. - What happens if another project is worth $500 billion to you in some intangible non-monetary form, for sure? You definitely need to do that now. You are out the $2,000 if you don't also do something toward the first project, though. Thus, the penalty which had been intended to keep you from goofing off becomes an extra burden also on something worth an intangible $500 billion to your happiness. The "here's your incentive to be happy and productive" becomes: "here's your penalty for being hyper happy and productive" (on a new, temporarily very valuable project.) Clearly a misalignment of incentives: an unintended consequence. - Note that if you are independently rich this contract could still help you make some progress! Suppose you committed to pay $2,000 as a penalty for stopping work, but stopped work since you have something guaranteed to give you $500b in intangible happiness. Now it is strictly better to hire someone such as an intern or assistant and pay them anything less than $2,000 as long as this counts as progress and avoids tripping the penalty. i.e. a loss of $1900 paid to an assistant (counting as some marginal progress) is strictly better than a penalty of $2000 (and zero progress). - Could this explain why rich people hire personal assistants and project managers? It is an automatic penalty: once the assistant / project manager is on staff their salary goes out the window. You might as well use them to do what you, as a rich person who can hire personal assistants and project managers, want to get done. Is their behavior of hiring assistants and project managers why rich people get so much done? If so, the moral of the story may be to set aside $2000 to be handed over to project managers you deploy strategically on any project you want done. If it works for wealthy people, it could work for you - if you pay the cash for it. While disincentives could be nice, as the saying goes, you have to spend money to make money. |