Behavioral Game Theory #2: Incentive Economy
Predictions through incentives.
Think back to the moment you and a good friend had an intense dispute, ending in severed ties. Before that moment, you likely assumed it would never come to this situation.
You tell yourself it was random. Unpredictable - A sudden crisis.
But it was never random. It has been readable all along, and the writing on the wall was constantly there. But until now, you never had the tool to read it.
Behavioral theory is the framework that makes these situations readable. And it allows for horrifyingly accurate and powerful predictions.
Predetermined to Act.
Most people like to imagine that they act freely. That humans are the species of “free-thinkers” and philosophers able to reflect on their past behavior and ultimately oversee their own minds. This notion of autonomy keeps them stable but also blind.
Having internalized the idea of the free mind so much, they forget to meditate on how humans truly form beliefs - and it is not a decision made with great autonomy. It's a compulsion consisting of two stages.
The uncomfortable truth is that most people are optimizing for something, and they will not tell you outright. For some, it is a conscious desire - ambition, wealth, or status - while for others it persists unnoticed, like the hidden need for approval or underlying narcissistic tendencies.
This behavior, the first stage, is the result of evolution over generations: the happy and fulfilled grew stagnant, refusing to engage with the hunt and forgetting to hoard their resources for winter; thus, they starved, and their genes never had the chance to be passed on. We are the children of those who were never satisfied, and we cannot avoid our nature indefinitely.
But whether we act on our desires is never guaranteed. They are internal - a construct of our mind. And that’s the only thing keeping them back; there is still a possibility that your wants are not socially compatible.
The consequences? Social exile. And it is the capital punishment for any human. Without contact, our being begins to deteriorate - it must be avoided at all costs. Thus, there must be a reward for an action that is greater than the potential pain caused: an outcome benefiting us greatly while also validating our internal desires, dreams, and ambitions.
Slowly, our pain aversion erodes. With every reminder of the reward, it breaks even the last line of defense against pursuing your own interests and begins the second stage: incentivized behaviors.
And this is the moment a person becomes predictable.
Incentivized Behaviors
Actions showcase what we optimize for and what we aspire to be. You do not need to be capable of reading minds to predict another person's actions: if you map their incentives, you can predict what they will do.
Thoughts are sketches. They indicate a direction, but there is no compelling “why” yet; the direction becomes unreadable and unmappable. That’s why you need to be reading incentives.
Logic of the Incentive
Incentives are rewards, whether tangible (e.g., money) or intangible (e.g., status). But their effectiveness depends on receptivity.
If your goal is to build wealth and status, you naturally grow receptive to incentives aligning with that goal. One day, you will begin looking for ways you can fulfill your ambition. These suggestions offer you an incentive: “If you do (x), you can expect (y)”; build a network to increase connections and influence.
Incentives are basic logic, but they weaponize your imagination. You expect the reward; you assume it as a matter of fact. That allows them to modify and impact your behaviors. In reality, the average person rarely just “stumbles” upon incentives. Instead, they are given.
And family dynamics are not exempt from this. Affection can turn transactional. Approval is allocated to those deserving of it.
The whole reason you go to work in the morning is related to incentives. Even when you deeply despise your job, you still show up. The consequences of having no income and the reward of gaining money prevent you from deserting the economy.
Remove incentives, and all structures collapse.
Incentive Misalignment
Think back to the moment you and a good friend had an intense dispute, ending in severed ties. Before that moment, you likely assumed it would never come to this situation.
Your relationship began in a state of shared goals or ambitions. But they diverged. You have begun following your own path, and so has your close friend. You might have developed a liking for reading, but your friend declares it boring and still urges you to go clubbing virtually every weekend.
Your goals misalign, and, likewise, do your incentives. It begins to impair your connection. At that moment, the worth of the connection decreases. Cutting ties becomes less hurtful and appears increasingly more like a natural process. Both of you blame time passing: “It’s just not like the past anymore.”
But now you perceive what everyone else would have missed. It was never about time. Your connection was not built purely on feeling but on shared memory and experience. As motivations began to differ, your incentives were gradually misaligned, and it ultimately resulted in chaos.
Incentives are engines. Drain them of fuel, and connections are burdened.
The Incentive Doctrine
Assess. Is the connection primarily built on incentives or feelings? The group you work with in business functions differently from your romantic relationships or deep friendships. One is built on shared incentives - working for a shared outcome; the other runs on emotions as fuel.
To find out which dynamic you are dealing with, cut the incentive; see who stays, and take note of who leaves.
Analyze.
Find out what the other person is optimizing for. Compare it to what your goal is. Assess who truly benefits: Is it asymmetric or mutual? True alignment pays both sides.
Prepare.
Incentives rarely last forever. What could cause your incentives to diverge? Plan to stay ahead.
Most people lose connections because they never understood them in the first place. You no longer have that excuse.
I wish I thought in this way a couple years ago. It would have saved me a great deal of money and emotional distress. Thank you for framing it so clearly.
Thanks boss! 🫡