The Importance of Incentives

Allen Faulton
10 min readAug 20, 2019

The Modern Survival Guide #88

This is the Modern Survival Guide, a guidebook I’m writing for things I think people need to know about living in the modern world. The views expressed here are mine, and mine alone. And I am fascinated with the way our world works — it’s why I’m writing the Guide in the first place. More to the point, I have particular ideas on why our society works the way it does, and this article is part 4 of a mini-series on the topic of understanding society. Previously we discussed the importance of individuals, institutions, and culture; today we’re talking about incentives.

Let’s start, as we often do, with a definition.

Incentive: a thing that motivates or encourages one to do something.

Thanks internet, that’s about the most broad definition I’ve ever heard. Nonetheless, incentives are hugely important to understanding society, individual actions, and predictions of future actions. Why? Well…

Incentives are important because no one does anything for free. We all do things because we get something in return.

Note the emphasis. Getting something in return doesn’t have to mean you get money. Money is a major incentive in our society, but it’s by no means the only one. You might get respect, love, friendship, entertainment, peace and quiet, a toy, a job, or a project. You might get power, responsibility, or at least an opportunity to make significant changes. The list of “somethings” is pretty much as diverse as the desires of the human species, which is to say well-nigh infinite.

The rest of this article will focus on how incentives fit into the chart I’ve been using for the last few articles, and here it is again:

Society, in a nutshell

I’ve been referring to this diagram as the Society Wheel because, well, it’s how I think we get “society,” and it’s a looped, iterative process. I’m not saying that the arrows always point in these directions, but I think this is how things normally work.

Incentives occupy the last box at the turn of the Wheel, and for good reason — if you’ve read the previous few articles you know that I think a lot of work goes into creating incentives, and they in turn influence the next cycle of the Wheel. Incentives are heavily dependent on the culture in which they are formed, and in consequence exert an enormous influence on the individuals who live in that culture and operate its institutions. Let’s dive in.

Culture Creates Incentive Structures

If you’re following the arrows, you’ll notice that I think a society’s culture is primarily responsible for shaping its available incentive structures. I just did a little wordplay two-step there, so let me break this down a bit. Incentives come from all over the place. Some are biological, some are psychological, some are products of our culture. But the incentive structure — the way the incentive is resolved — is almost always a product of culture.

Let’s give this a definition, because why not. Incentive structures are cultural patterns that produce a definition of “normal,” a list of assumptions for correct actions in a “normal” situation, and an acceptable path to achieve need resolution within the “normal” assumptions.

For example, the cultural incentive structures around food are fascinating. Of course we have to eat; that’s not a cultural product, but a biological fact. We are therefore incentivized to seek food by our biology. However what we eat is cultural, and what it takes for us to eat is cultural. “I’m hungry, therefore I eat food,” isn’t actually an incentive structure. “I’m hungry, therefore I earn money to buy culturally acceptable food from the grocery store,” is an incentive structure.

Check the “normal” concepts and assumptions in that structure:

  • The concept of money
  • The assumption that money is valuable
  • The concept of exchanging money for goods
  • The assumption that money can be exchanged for food
  • The (rather new and revolutionary) concept of a grocery store
  • The concept of socially acceptable food
  • The assumption that the grocery store will have socially acceptable food

And finally we see the structured path of spending money at the grocery store to purchase socially acceptable food and meet the hunger need. Each one of these things is a cultural artifact, supported by legions of institutions… and we just take it for granted. Neat, right?

What’s fascinating about this is that if you live anywhere near a road, you can find bushmeat just lying around for anyone to take. Yes, I’m talking about roadkill. Half of you just went “Ewww!” Hold that thought — why did you just go “Ewww?” Seriously, think about it. Probably a fair portion of the deer kills on the side of the road are fresh enough to eat. Anyone with a plastic sheet could roll one up and have meat for months. Practically no one does.

Why? Why do we leave a freely available resource lying around? Culture, pure and simple. We are actively told in US food culture that roadkill is gross, and that grocery store food is safe and preferable. Objectively speaking, the fresh deer meat is probably better for you compared to, say, store-bought beef. It’s low-fat, high-protein, avoids some of the moral issues of factory-raised meat, and it has real flavor. But it’s not a culturally acceptable food source, so we are actively incentivized to leave it alone. We go to a grocery store and spend money on beef instead.¹

And why do we spend money for food? America grows more food than we need by an order of magnitude. I have to pay money for food because my culture doesn’t support the idea of just giving people food for free if they can do something productive to earn it. This is the product of a long, complex cultural transformation away from sustenance lifestyles, away from barter systems, and towards the use of systematized and monitored productivity analogue transfers (also known as “money”). It’s also a product of a long cultural discussion about what qualifies as “productive,” and what qualifies as the ability to be productive.

These are just a couple of examples of incentive structures. Let’s break it down into some common principles. All incentive structures are dependent on a few factors:

  • Culture creates “normal”
  • “Normal” provides a list of options
  • Culture creates assumptions of rank-order preference
  • Assumptions determine which of the options we pick
  • Incentive structures therefore feature choices that follow “normal” options through assumptions to show how a need turns into a resolution

In the US food culture, this manifests as “normal” being that we either have a garden, hunt our food (but only in the country), or buy food if we live in a city. If we buy food, we have options ranging from food trucks, restaurants, grocery stores, farmers markets, fruit stands, etc. If we want a home-cooked meal, that usually defaults to going to the grocery store for most people (because roadside stands are of dubious quality, and farmers markets are expensive as a rule).

Nowhere on that list is roadkill to be found. It’s considered unhygienic. And to be fair, some of it is. Also to be fair, a few hundred thousand people a year get e coli poisoning from grocery store-bought lettuce. “Clean” food is very much a matter of inspection, but we have a cultural predisposition to view grocery store food as “clean,” possibly due to the number of food regulations and accompanying assumptions of safety that surround processed food in the US. Such is the incentive structure for US food consumption.

Now expand that concept. Look around and try to count all the incentive structures that make up daily life. It’s worthwhile to think about how all this affects us, both personally and as a feature in the Society Wheel. Because remember — every time the wheel turns, if nothing changes it just grinds the groove of socially acceptable incentive structures that much deeper.

The Importance of Incentives

Incentives are important because they motivate people to get shit done. No one does anything for free, and the amount of work or activity we commit to is very much dependent on the incentives and incentive structures we encounter.

None of this is shocking; I’m not saying anything revolutionary here, aside maybe from the idea that no one does anything for free. What about altruism, you might legitimately ask? Well, I think it exists, certainly, but I think people get hung up on what altruism is. A lot of people seem to think that altruism means that you perform a good act for the sake of performing a good act, and therefore that it falls outside of incentives structures as a whole. And they’re wrong.

Altruism is simply an instance of people being motivated by non-transactional incentives, which is to say that an altruist does their thing without the expectation of tangible reward. This isn’t to say they lack incentives. They may do it for the pleasant feeling that accompanies a good act. They may do it for personal or philosophical goals for the betterment of society. They may do it to distract attention from the truly nefarious shit they have going on in the background. There are loads of incentives that don’t rely on tangible exchanges, or even obvious goals.

The point is, we have to get away from this idea that an incentive is just money, or just a reward. The human species survives because we are incentivized by so many things that are non-tangible but nonetheless important.

All of which is to say that the average individual in a modern society is beset on all sides by a rabid host of incentives, and must work through an at-times confusing set of incentive structures. Anyone who has ever been to the DMV knows what I’m talking about. And this is important, because this act of interacting with incentives and incentive structures is a major factor in turning the Society Wheel.

The incentives we receive prompt us to resolve needs through our society’s incentive structures. The end product is that we usually interact with an institution to do so. That interaction tends to reinforcement of the dominant culture, which then reinforces the incentive structures, and the Wheel turns again.

Conversely, if we are dis-incentivized by our society’s culture — if we disagree with the incentive structures we receive, the ideas of “normal” that others take for granted, the assumptions that control our choices — then we are very strongly incentivized to change things. A successful change agent usually makes their changes at an institutional level, which then disrupts the dominant culture, which then changes the incentive structures, and the Wheel turns down a different path.

None of this stuff exists in a vacuum; there’s never just one Wheel turning in any given society. And it is not obliged to be obvious. Sometimes the chain of events that I describe as the “wheel turning” happens so fast you barely even notice. Sometimes it creates major consequences that everyone notices. Desegregation was a major turning point for our society. So was the moon landing. So is the rise of Amazon.

If you want to know why things happen, why some stuff gets done and some stuff does not, always check the incentives.² Individuals are at the top of the Wheel because without individual initiative, nothing happens. But that initiative is formed and guided by incentives. Speaking of which…

Incentives Control Individuals

Ok, “control” is a strong word. But it’s very, very appropriate. The incentives that we receive dictate large portions of our lives without any input on our part. We do not, as individuals, get much choice in a LOT of the things that our societies take for granted, and turning the Wheel to make a change is a serious undertaking. It takes a lot of work to change the incentives that apply to any given part of your life. Most of the time, it’s not worth the effort for most people.

So — control. If you go with the flow, the incentive structures around you will control your life. Not all of your life, but an awful lot of it. You will be locked into the systems, expectations, moral structures, philosophical assumptions, and codes of behavior of your society’s “normal” state, because most of the incentives we deal with are aligned to the social “normal.” Decide for yourself if this is something you’re ok with.

At the same time, it is very worth your while to keep track of the incentives that are motivating the people around you. Remember — everyone does what they do for a reason, and no one does anything for “free.” Everyone is getting something out of their actions — even if that something seems nebulous to you, it’s obviously enough to motivate them.

Therefore, if you are interested in controlling the people around you, look to the incentives. This is something they hammer into you in business school and political science, there are lots of theories on how to create effective incentives, and if you think the high and mighty aren’t thinking about this you’re kidding yourself. You are controlled in large part by what you think you have to do. It is worth your while to figure out who is benefiting from those compulsions.

Sometimes the incentives people assign to you are not the incentives you want, and sometimes the incentive structures we are forced to use do not take us down paths we wish to walk.

Takeaway: Incentives are Complex, Countless, and Controlling

Nothing happens in a vacuum. Incentive structures interact through the Wheel in the same fashion that cultural concepts, institutions, and individuals do. There are thousands of overlapping, sometimes contradictory incentive structures that we each deal with every day; I think that’s part of the reason why people are so stressed all the time.

If you take away nothing else from this article, just remember that everyone you interact with is working off of an internal script of incentive structures. Everyone. All the time. And you will not know what a large number of those incentives are. But if you can figure out just a few of them, that’s a major insight into your neighbor’s actions.

As a final point, remember — we are, to some extent, what motivates us. Try to make sure that your motivations are pushing you down the path you want to travel. It’s all too easy to go with the flow and let the incentives control you.

¹And this isn’t even touching all the other bush meat that Americans won’t eat, despite high availability. How many people do you know who are willing to eat squirrel? Or even alligator? It amazes me that people will react with disgust when confronted with, say, possum roast, but will then happily turn around and eat crab. What exactly do you think crabs eat?

²The common parlance is “follow the money,” but again, money is just one of many, many potential incentives. It just happens to be a really common one.