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by Nassim Taleb "4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safe

by pella 10y ago

by Nassim Taleb "4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards. " from: "Ten principles for a Black Swan-proof world (2009)" https://www.ft.com/content/5d5aa24e-23a4-11de-996a-00144feabdc0 https://www.ft.com/content/5d5aa24e-23a4-11de-996a-00144feab...

smcl 10y ago
I agree with the first part of that quote, but when it says "No incentives without disincentives" that's where the bankers would argue that there are disincentives, like the "performance culture" (firing the bottom performing 10% etc). I would disagree with them (the bottom 10% may just be more aligned with reality, or considering the long term for example) but these guys are slippery and will find any means necessary to justify this behaviour.
aaronchall 10y ago
The balanced scorecard provides a way to manage non-financial measures of performance, and incentivize long-run measures. https://en.wikipedia.org/wiki/Balanced_scorecard https://en.wikipedia.org/wiki/Balanced_scorecard If you measure the result of independent inspections and auditors on the executives' scorecard, don't be surprised if you get a financially healthier long run management of the firm. I think at some point Taleb was learning the math and theory behind statistics, and then decided it was time to stop learning.
- badsock 10y ago
  That seems better than judging performance based on a single metric, but still wide open to gaming. In my experience, it's better to use your full range of objective and subjective facilities to select a good manager, and then trusting them until it's time to re-evaluate (using the same means but now with more evidence of their performance). An organization that runs on extrinsic motivations can only ever be mediocre at best (and often worse), and there's very little that kills intrinsic motivation more than putting people into systems designed reduce a human's potential to a number (or several numbers in the case of your balanced scorecard).
balnaphone 10y ago
Text of "Ten principles for a Black Swan-proof world (2009)" that's not behind a paywall http://www.commondreams.org/views/2009/04/08/ten-principles-black-swan-proof-world http://www.commondreams.org/views/2009/04/08/ten-principles-...

by pella 10y ago

smcl 10y ago

I agree with the first part of that quote, but when it says "No incentives without disincentives" that's where the bankers would argue that there are disincentives, like the "performance culture" (firing the bottom performing 10% etc). I would disagree with them (the bottom 10% may just be more aligned with reality, or considering the long term for example) but these guys are slippery and will find any means necessary to justify this behaviour.

aaronchall 10y ago

The balanced scorecard provides a way to manage non-financial measures of performance, and incentivize long-run measures. https://en.wikipedia.org/wiki/Balanced_scorecard https://en.wikipedia.org/wiki/Balanced_scorecard If you measure the result of independent inspections and auditors on the executives' scorecard, don't be surprised if you get a financially healthier long run management of the firm. I think at some point Taleb was learning the math and theory behind statistics, and then decided it was time to stop learning.

badsock 10y ago
That seems better than judging performance based on a single metric, but still wide open to gaming. In my experience, it's better to use your full range of objective and subjective facilities to select a good manager, and then trusting them until it's time to re-evaluate (using the same means but now with more evidence of their performance). An organization that runs on extrinsic motivations can only ever be mediocre at best (and often worse), and there's very little that kills intrinsic motivation more than putting people into systems designed reduce a human's potential to a number (or several numbers in the case of your balanced scorecard).

balnaphone 10y ago

Text of "Ten principles for a Black Swan-proof world (2009)" that's not behind a paywall http://www.commondreams.org/views/2009/04/08/ten-principles-black-swan-proof-world http://www.commondreams.org/views/2009/04/08/ten-principles-...