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Collection: Charlie Munger - #167 'Avoid Perverse Incentives & Associations'


Video Link: https://youtu.be/B77xlP59pac


In this episode, Charlie Munger talks about why should you avoid perverse incentives and associations?


In this episode, you’ll learn:

  • How does incentives control human cognition and behaviour?

  • How to be more satisfied with your life?

To check out all Collection: Charlie Munger <click here>

 

[Transcript]

(Source: https://youtu.be/jY1eNlL6NKs)

CHARLIE MUNGER 00:00

Another thing: perverse incentives. You don’t want to be in a perverse incentive system that’s causing you to behave more and more foolishly or worse and worse.


Incentives are too powerful a controller of human cognition and human behavior, and one of the things you are going to find in some modern law firms is billable hour quotas and I could not have lived under a billable hour quota of 2,400 hours a year. That would have caused serious problems for me. I wouldn’t have done it and I don’t have a solution for that for you. You have to figure it out for yourself, but it’s a significant problem.


Perverse associations also to be avoided. And you particularly want to avoid working directly under somebody you really don't admire and don't want to be like. It's very dangerous. We're all subject to control to some extent by authority figures — particularly authority figures that are rewarding us. And that requires some talent.


The way I solved that is I figured out the people I did admire and I maneuvered cleverly, without criticizing anybody, so I was working entirely under people I admired. And a lot of law firms will permit that if you're shrewd enough to work it out. And your outcome in life will be way more satisfactory and way better if you work under people you really admire. The alternative is not a good idea.

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