Scientific Definition
Issuers pay raters who compete for the highest ratings.
Plain-English Definition
Issuers pay raters who compete for the highest ratings.
Feynman Explanation
The judges are paid by the contestants.
Core Principle
Issuers pay raters who compete for the highest ratings.
Mechanisms
Pending editorial review.
Issuers pay raters who compete for the highest ratings.
Pending editorial review.
Pending editorial review.
Issuer-pays distorts gatekeeping.
Pending editorial review.
Pending editorial review.
Inputs (Triggers)
Pending editorial review.
Outputs (Behaviors)
Pending editorial review.
Behavioral Signature
The judges are paid by the contestants.
Examples
- AAA ratings on subprime MBS pre-2008.
- Issuer-pays distorts gatekeeping.
Pending editorial review.
Famous Experiments
Pending editorial review.
Design Principles
- Investor-pays rating models. Public ratings utilities.
Measurement Approaches
Pending editorial review.
Evidence
Pending editorial review.
Pending editorial review.
The Perverse Incentive Lens™
How this behavior is exploited — and how to redesign around it.
- Investor-pays rating models. Public ratings utilities.
Pending editorial review.
Pending editorial review.
Interactive Mini Network
Click any neighbor to re-center the graph and follow the threads of connection.
Knowledge Graph Neighbors
Auto-linked to the rest of the Human Behavior Taxonomy by family, domain, dimension, and shared keywords.
Annual bonuses reward annual results — risk that blows up in year four with damage in year seven is rational.
Auditors paid by the firms they audit have predictable blind spots.
Quarterly bonuses create end-of-quarter behavior changes.
Government rescues of failing institutions privatize gains and socialize losses.
Quarterly earnings drive quarterly behavior.
Percentage-of-AUM fees reward gathering assets regardless of net performance.
Originators paid on volume, not on default rates.
Originators paid on volume, not on default rates, fueled the subprime collapse.
EPS-targeted comp incentivizes buybacks even when reinvestment yields more.
Candidates dependent on large donors become structurally responsive to donor priorities over voter priorities.
Cheap, low-quality offsets let buyers claim neutrality without reducing emissions.
Discount framing nudges people to buy things they wouldn't otherwise want.