About 2 months ago, a friend and I presented on what we think are the 5 laws of incentives. We have collected nearly 200 case studies on incentives alone and we presented these in the form of the 5 laws. Here they are:

The 5th law says: to change outcomes you need to change incentives. And the corollary is: if you don’t change incentives, you are unlikely to change the outcome.

The following is the latest addition to our list and it came in the paper this morning (21-Feb-2023). It is actually quite hilarious. Apparently the Bengaluru Traffic Police wanted to reduce corruption and to do this they told 4500 personnel to wear body cams. The idea being that the Police personnel are unlikely to ask for bribes if they are wearing body cams.

So what was the outcome? The traffic personnel still collected bribes as before without wearing the body cams or the body cams weren’t “working”.

So, why did this initiative fail?

We Indians are among the world’s worst drivers (that’s what I read somewhere) and I don’t doubt it. So catching traffic violators is easy. Most policemen when they catch a violator, they would make an offer: pay the legal fine of Rs 1000 or you can pay us a bribe of Rs 500 and get away. It’s an easy decision to make and I hate to say it but it is a win-win for the violator and the policemen.

Here is the other sad part. The entire system is corrupt- from the policemen to the politicians at the top. When government officials ask for transfers to a favorable location or to even get a promotion, they have to bribe the politician. It’s not like the politicians don’t know where the money is coming from either. So everybody has an incentive to keep the system the way it is. So as Law 5 says- outcomes will not change unless incentives do. And the bosses who can actually change the incentives don’t want to. And therefore the outcomes will remain the same, body cam or not.

The hilarious part is some Smart Alec came up with the idea of getting policemen to wear body cams with the assumption that if the policemen are watched they will do their job without asking for bribes. Yeah, right! Neither the policemen nor his bosses would want him to wear body cams all the time because how else will the bribes get into the system for the next promotion or the next transfer or the next elections. The sub text gives it away: but there is no method to ensure it (body cam) stays on at all times.

If the Police Department really wanted it, wouldn’t they have found a way to make sure it stays on? And so… even the best body cams will tend to malfunction, tend to run out of battery, tend to be not worn, tend to be damaged…all the functional equivalents of dog-ate-my-homework.

So, is there a way out for Bangalore Traffic Police?

Many years ago I remember that Cafe Coffee Day used to have a sign in every store that said if you don’t get a bill with your meal, then your order is free. (That is, you need to call their helpdesk and report to them that you got your meal without a bill. That way the errant employee will be pulled up.) Essentially CCD was incentivizing the customer to report rather than ask its own employees to wear body cams. LOL! Now, this is an experiment worth studying for Bangalore Traffic Police if they are serious about tackling the corruption.

To summarize:

If you too collect case studies of such human folly, you will start to see recurring patterns. Like Charlie Munger you too can then say “I have seen this movie before and I know how it ends”. On this very same topic (Law 5) we have half a dozen case studies and the pattern is similar: Change the Incentives and you change the outcomes; and don’t change the incentives and no matter what you do, the outcomes don’t change.

For example, in the 1800s England used to send prisoners to Australia and many of them died due to abuse on the ship. They changed the incentives and told the ship captains that they would get paid for the number of prisoners that reached Australia alive (and not by the number of prisoners that boarded in England) and the prisoner deaths reduced drastically!

Incentives are a super power and you should spend some time learning how to use them and how not to use them. Throwing technology at the problem without changing the incentives is plain pointless. Here it was body cams and in other contexts I have heard how CCTVs in government offices can apparently reduce corruption. No sir, it won’t fly unless you change the incentives.

And finally, we can either learn from others’ mistakes for free or commit mistakes and learn at a great cost.