moneyFYI
Financial Freedom Is Merely Organized Common Sense
The Motivators In Life
Thomas Sowell has told us that life is about two things. Tradeoffs and incentives.
Tradeoffs
Tradeoffs because of scarcity. We cannot have everything we might want because we don’t have enough money for everything. Instead, we accept substitutes. Citizen for Rolex. Rolex for Patek-Philippe.
Incentives are more complex.
Incentives come in two flavours. Positive and negative. Negative incentives provide us with a reason to not perform a particular act. Parking in a handicapped zone might be quicker, but the substantial fine says to look further afield.
Positive incentives can provide motivation. Education might be an example. We invest time and money now for more money and a more exciting job for a lifetime. When incentives align correctly, people can make decisions that fit. It is harder to perform any long-duration task without an incentive.
Sometimes negative incentives are not effective. Suppose you had the opportunity to rig an election and knew there was near zero chance you would be caught. Would you do it? Many would.
If shoplifting is unpunished and people know that, would you expect the incidence of it to rise? You would, and it does.
Sometimes politicians promise things that appear to be incentives but, in fact, are not. Many grants and other awards suggest that people can gain a valuable benefit for free. In the end, the bureaucratic helpers negate the value. I have a client who claims he would not apply for a grant of less than $500,000 because it would not be worth the trouble. One of the possible troubles is when a competitor makes a freedom of information request. You didn’t think about that one, did you?
A thought from Charlie Munger
This idea does not guarantee any particular outcome, but it is persuasive for the expectation over many instances.
“Show me the incentive, and I will show you the outcome.”
When creating business processes or raising children, be sure the incentives are aligned with the outcome you want.
Be careful with some incentives. Having a higher credit limit on a VISA card sounds nice, but will it work for you?
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
moneyFYI 