The Big Short

The Big Short

By

Michael Lewis

The one thing that I picked up from this book is that “If you want to predict how people will behave you only have to look at their incentives.” In the book it mentions several examples of this, but one that stuck out to me was of Xerox. They had made a better machine, but because their salesman were getting less commission off of them they actually sold fewer machines than was normal and kept selling the older and less dependable machines to increase their commissions.

There are a plethora of things that could be taken from this and implemented in my life. In my personal life with my wife I could change or implement structure in how I interact with her so that we both mutually benefit from an increased love for each other since the incentives are properly placed. One way of doing that change is doing activities together that we both like to do.

In business if I don’t like how I’m being compensated I could ask for a change in how my pay or bonus structure is so that achieving those incentives is challenging, exciting, and rewarding. Who really wants to do a job they know they can’t get done no matter how hard they try? Let me answer my own question since it is my blog. Nobody. In fact over time I bet that people will naturally tend to work less and less diligently if that is their particular situation.

Recently my company rolled out a program for the bonus structure that almost completely rules out getting your full bonus potential. It is possible to get, but it is very difficult. I spoke up in the meeting saying that the new program didn’t quite feel right and after the meeting (nobody else spoke up about it until I had and they almost closed the meeting until I piped up) several people, including my own boss, said that they didn’t like the structure and that they were glad that I said something.

We could also implement incentive changes in government. To be honest I’m not really sure what would be the best way to change things. What if we disallowed somehow that a private sector individual could not become a public sector representative and vice versa? This would avoid people being manipulated by lobbyists since they wouldn’t receive later benefits based on how they voted. There a million ways I’m sure we could change the incentives of our elected that would be for the better of our country, but changes could and should occur based on our current issues we face as a nation.