25 Cognitive Biases - Bias 1 Reward and Punishment Super-Response Tendency

The power that incentives and disincentives have on the actions of others cannot be overstated. Munger says this should be obvious but so many people don’t understand the how important incentives are for shaping people’s motivation to complete a task.

Incentives and disincentives are extremely important in changing behavior.

Just follow Benjamin Franklin’s Maxim:

“If you would persuade, appeal to interest and not to reason”

“Never think about something else when you should be thinking about the power of incentives.”

“Incentives will almost always trump any moral duty”

‘The most important rule in management “Get the incentives right”‘

“Bad behavior is intensely habit forming when it is rewarded.”

These were some quotes from Charlie Munger on Reward and Punishment Super Response…

From Poor Charlies Almanac

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.

6 thoughts on “Bias 1 – Reward and Punishment Super-Response Tendency

  1. Mitchel Nguyen says:

    Extremely powerful. Imagine the ways this has affected your life, from your parents, to your teachers, friends, and strangers off and online! Harness this teaching and your life will much easier!

  2. Derrick says:

    So for this bias, we should simply just give a person a “incentive” to influence someone to do something. Obviously an incentive that the person has a real liking for. So an example could be giving someone a cookie in reward for running a marathon that day.

  3. Carlos Charre says:

    For example, lets say you have a digital marketing agency and your trying to get a restaurant as a client to sign up, you can use the Reward / Punishment bias by telling your prospect that they would see an increase of 50% in sales within a year of strategic marketing but if they don’t act now then we’ll go to your competitor across the block and offer the same offer to them , ultimately benefiting the competitor vs the client your trying to close.

    This reward / punishment bias makes the prospect instantly feel good, but then KILLS them when you immediately provide the punishment if they fail to act NOW!

    This causes urgency and creates a WIN/WIN scenario considering your ethically doing the right thing.

  4. Stephen says:

    This does leave out the punishment aspect. Nowhere is it mentioned that by doing so the person should feel like they are being punished, or missing out tremendously, if they do not compete the task.

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