Thread by @joinditto

What do rats teach us about misplaced incentives?

A must-read thread🧵

Rats are trouble.

And in 19th century Hanoi, they were deadly too.

These furry little creatures carried the bubonic plague and in the French colony of Hanoi, officers were livid to see their numbers grow exponentially.

So they devised a scheme. A reward program to end the scourge forever. 

If you killed a rat, you could collect a small bounty in its name. All you had to do was find these rodents, kill them and bring them in.

Soon, people were hunting rats by the thousands. At one point, 10,000 rats were being exterminated each day. 

But there was a problem. The bodies of the dead rats were piling up in hordes. It wasn't a pleasant sight and the officers had to act quick.

So as an alternative, they began encouraging citizens to only carry the dead rat's tail as proof of killing. The citizens were asked to dispose of the body themselves

This should have put an end to the furry menace. But alas, it didn't.

Because even though rat tails were piling up en masse, officers soon started noticing tailless rats scurrying around in the open.

Hanoi citizens were simply responding to the incentives extended to them.

The officers paid by the tail.

The body didn't matter.

Even other industrious citizens began breeding rats in a bid to claim even higher rewards.

The scheme had turned on its head.
 
So remember - Incentives drive outcomes. If you don't have the right incentives, you won't see the desired outcomes.

What's all this to do with insurance?

Well, this perverse incentive is a feature of the insurance industry as well. If your agent's incentives don't align with your objectives, you will suffer as a consequence. So if you are buying insurance, make sure you #AskDitto first.