Broken Social Incentive Systems

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And how short-term thinking can be dangerous

“If our descendants were to diagnose the ills of 21st-century civilization, they would observe a dangerous short-termism: a collective failure to escape the present moment and look further ahead. The world is saturated in information, and standards of living have never been higher, but so often it’s a struggle to see beyond the next news cycle, political term, or business quarter.” [Source]

Today I am going to try something new. I will leave technical matters aside for a moment, and instead of imagining how the future could look like —something you know I love doing— let’s focus on the present.

The other day I came across this article which reflected on what —I agree— may be one of the most dangerous systemic illnesses of our current society, “short-termism”. I think it is becoming such a worrying problem because it is affecting all of our social systems, from politics, businesses and the economy, to relationships and innovation.

How and why have we reached this state where people consciously —or unconsciously— value more short-term thinking and rewards than long-term thinking and potentially higher rewards in the future?

In the late 1960s, psychologist Walter Mischel and his colleagues at Stanford University conducted a series of studies on delayed gratification, known as the marshmallow experiment. The researchers presented four and five-year-old preschool children with one marshmallow apiece and told them that they had two options: they could ring a bell at any point to summon the experimenter and eat the marshmallow, or they could wait until the experimenter returned — usually about 15 minutes later — to earn an extra marshmallow. In other words, the children had to choose between a small immediate reward and a larger later one. You can predict what the results were and what the great majority of the kids did, right?

I get it, we are wired that way. When we were nomads living in the savanna, and we were lucky enough to come across an antelope, we better hunt that bastard and fully eat it before it went bad, as we couldn’t know the next time we would be able to sink our teeth into another delicious leg of antelope. We praise ourselves now for our rationalism, enlightenment, and free will, but the more I look around, the more I see individuals more enslaved to their instincts than ever. Our society —in which I obviously include myself— is becoming that 5-year old unable to wait 15 minutes to get his second marshmallow.

And who’s fault is this? I really don’t know. We could blame the Internet, we could blame our politicians, or even our parents' generation, but if I may, I will venture to say that one of the sources of the problem is that our social incentive systems are broken. Of course, we as individuals which are part and the responsible for building our society may be a bit to blame. We built the incentive systems that got us here, and that are transforming us again into “short-termism animals”.

Broken Incentive Systems

“The sociologist Robert Jackall described one scenario in which this happens regularly. He called it “milking the plant”: a manager would arrive at a plant or factory with an ambitious set of targets from the board, and immediately crack the whip. Productivity would rise accordingly. Months later, the targets would be hit, and the manager would be promoted or move on. Left behind, however, would be a mess: unhappy workers and machinery run into the ground. The next manager would have to pick up the pieces with a new set of short-term targets—and the cycle would repeat."

The example above illustrates perfectly a sign of a broken incentive system. The first manager is encouraged to do “whatever it takes” to grow the numbers, because he knows that doing so will get him promoted. He doesn’t care about having a sustainable plant that is recurrently productive. Even less about the next manager coming along being able to keep up with the good work and ensure the right operation of the plant. He only worries about his own promotion.

Many may argue that this is just an illustration of the managers “selfishness”, but I would say that he is able to be selfish because he is part of a system that rewards selfishness and short-term thinking. And this leads me to my theory on how we have broken our current incentive systems.

“There may be multiple forces fostering a short-termist mindset in our age. Some point to that often-blamed scourge, the internet. Others lament the intersection of 24-hour news media and politics, which encourages decision-makers to focus more on headlines or polling than future generations. Hartog blames the capitalist, consumerist norms that came to dominate Western culture by the late 20th century."

And why I think they’re broken

You’ve probably heard this a thousand times from a thousand different people: “what can’t be measured, can’t be managed”. From my point of view, this statement is basically correct. If we know what is happening under the hood of our systems, we will be able to perform more informed and well-thought decisions.

But we live in an era where almost everything can be measured thanks to the technological advancements. And as important as measuring is knowing what to measure, and what metrics to optimize for. If the aforementioned company had set long-term goals to the plant manager —conveniently rewarding him throughout the way— he may have been encouraged to build sustainable processes in the plant instead of optimizing for the short-term solution indebting the future of the company —and potentially probably distancing from the company’s global vision which I presume is to become sustainable so it can earn money for a long period of time, and not only earn money in the next quarter.—

The worrying part of this is that we can see these same behaviors in many of our current social systems. Let’s try to outline a few examples:

Politics and democracy

The vast majority of modern democracies were established before every citizen had a computer at home. Polling the sentiment of citizenship wasn’t as easy as it is today, so politicians couldn’t accurately measure the reactions of everything they said in the press, or the impact of the decisions they made. The only way for them to be reelected was to do the right things for all their citizens as a whole.

This is not the case today. They can measure every single reaction of their acts. The twisted thing is that they don’t use “citizenship happiness” or “economic sustainability” as the metrics to optimize for but “votes”. They only worry about doing things that would get them the largest amount of votes in the next election, regardless of whether this favours one part of the population over another. Politicians want to keep their job as much as possible, and as the democratic system is built today, the only way they can do so is by getting votes every four to six years (according to the country), so they measure and optimize for that.

Business and corporations

Our plant manager is a good example of how the incentive systems of corporations, businesses and even the economy are twisted. — “Who cares about the environment if I can reduce my cost model burning coal now? I probably won’t be around when all of this explodes. Furthermore, our investors will really like a reduction in our fixed costs for the next quarter”.

— “We are going to fire all of these employees and outsource their work, it would look better in our annual statements. We are outsourcing our core business processes and we will lower the entrance barriers to our business, but who cares? This would definitely boost the stock price”.

— “We will keep paying dividends 10 more years independently of our revenue, even if that means issuing debt to pay the dividend”.

— “Let’s cut our budget on R&D, they don’t even generate income for the company”.

I don’t think I need to give any more examples of misalignment between the incentive systems, the rewards, and the long-term goals of the entities involved in the economy and corporations.

“The final temporal stress—and this is a major one—is targets. Today, metrics dominate all realms of life. Growth statistics. Efficiency scores. Shareholder returns. KPIs, GDP, ROI. If poorly framed, these targets foster presentism or even encourage bad behavior."

Academia and Innovation

This is one that really hurts me personally (and definitely worth a full publication). With exceptions, we don’t see today the level of disruptive innovations in academia and industries as the one from the 20th century with the huge research and innovation entities such as the Bell Labs or PARC. We don’t pursue deep innovation as before, we keep doing shallow and incremental improvements.

There may be several things to blame for this, but I’d like to especially blame one today: academia’s incentive system. Shannon wouldn’t have been a recognized research nowadays because he didn’t publish that many papers,

— “But he is the father of information theory?"

I know, but that is just one great publication, and the current metric to become a good researcher is not only “how impactful your research was” but “how many papers have you published”. Even more when you start your researching career. You are incentivized to write “publishable” papers instead of investing the time on doing deep and impactful research, especially if you want to keep your scholarship.

“Even the medieval builders of cathedrals—often lauded as examples of long-term thinking for creating structures that would last generations—were not imagining radically different futures with any great degree of foresight. It’s difficult to be a “cathedral thinker” when the lives of our children promise to be so radically different from our own—a problem that our medieval ancestors simply did not have."

We need to think deeply to build a brighter future

Indeed, at the beginning of this publication I lied. I said I was going to focus on the present, but I only did it to call your attention on something we need to work on —and probably fix— to build brighter times that other generations will be envious of. I often fantasize about working at Bell Labs and being part of the work that has impacted and benefited our world so outstandingly. Let’s work together to make future generations be jealous of our times in the same way.

Disclaimer: This publication was initially 25-pages long, and it was literally a “mental release” to brain dump all of the ideas around “broken incentive systems” that have been hanging around my head for a while. I would love to hear your thoughts and feedback. If I end up exploring or reflecting on this more I may publish a few more of the ideas I’ve written in the process. In the meantime, see you next week!