1. An example of a perverse incentive, or the "law of unintended consequences" is currently happening at my place of work. Our team is responsible for the purchasing and management of parts within the manufacturing plant. We are currently launching a new parts management system and need to review as many parts as possible to make sure the transition is smooth. Our manager created a "competition" but more of a weekly project for us to review new parts each week and make changes as we see fit for review. The incentive to win with the most parts reviewed is a lunch outing. The parameters for this incentivized project were and still are, broad. This allowed many individuals to work a parts report that is expected monthly and claim that work as part of the project. Really, the number of parts overall has not changed in review if using normal expected reports, but people are able to claim as the incentive project. On paper, parts reviewed have been large, but in the grand scope of our normal process review is no different. This project is based with great intentions, but the outcomes were not fully anticipated. (See around pg. 63 Kindle version regarding the pollution of Mexico City - this reminded me of that in a way)

 

2. A. One topic I found particularly interesting in the text from Whelan is the "Prisoner's Dilemma" but more specifically the idea/foundation that rational individuals acting in their own best interest do things that make themselves worse off. Yet their behavior is entirely logical. I immediately think of the Fyre Festival disaster. (Another example of a perverse incentive) This music festival was created by Billy Mcfarland and Ja Rule to promote their app which was for booking musical talent. I remember seeing an Instagram post from Kendall Jenner promoting the music festival. They invested majority of their capital available into promoting the festival and advertising that eventually led to the festival not being able to happen due to lack of resources and essentially fraudulent activity. Their intentions in the music festival and trying to raise capital were logical, but ultimately failed and led to a disaster state for the Bahamas community where the festival was going to take place, and all the festival goers who arrived at a building site. ( some people paid thousands for this private villa) This led to Billy McFarland to becoming a convicted felon.

 

B. Another topic i found intriguing is externality. The private costs of my behavior are different from the social costs. I used to drive an hour one-way, seven days a week through college. I worked full time and went to school full time in another city, so my schedule kept me on the road. When i was reading about externality, it reminded me of my previous (sometimes occasional now) speeding habits. I used to go over the speed limit 15+ mph to gain some time back in my day. The private costs of my behavior, from my previous point of view, were i could get a speeding ticket and i could cause my insurance to go up. I never considered death an option, because i never thought it could happen to me - a little bit of an invincible mentality there - but now i definitely see this in a different light. The social costs of my behavior largely outweigh my personal, or private costs. I was risking other's lives greatly. Someone could have assumed i was going the speed limit and pulled out in front of me and the collision be detrimental. I could have incurred legal fees, hospital fees, and bodily injury to others. My incentive was to cut-down my travel time by risking a speeding ticket, this was at the risk and expense of others.

 

How do you respond to this?

Answer rating: 100% (QA)

Its evident that both examples illustrate the concept of perverse incentives and unintended consequences in different contexts In the first scenario t... View the full answer