Time Inconsistency and other problems in bonus schemes = Epic Fail

A very interesting article from Nassim Taleb about how bonus schemes on Wall Street greatly diminish the value corporate officers provide to shareholders.  It’s not that different from time-consistency problems faced by public officials, except in the private sector you can actually measure the outcomes in dollars and cents.

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About Jake Wobig

I teach international relations and comparative politics at Wingate University in Wingate, North Carolina
This entry was posted in Markets. Bookmark the permalink.

One Response to Time Inconsistency and other problems in bonus schemes = Epic Fail

  1. BJ says:

    Two things come to mind:

    1. without punishment, prosocial behavior declines and self-interested behavior increases, so this should lead to more “what’s in it for me” at corporate leadership positions… which may have happened.

    2. From a prospect thoery (what else) standpoint, if there is no possibility of loss, there is no loss aversion, and therefore no disincentive to take risks.

    Put them together, and what do you get?

    Hmmm.

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