Perverse incentives: the system rewards the opposite of what it wants.
A perverse incentive is when the rule, intended to fix a problem, makes it worse.
Perverse incentives aren't rare — they're the default outcome of any well-meaning rule that wasn't pressure-tested against the people who'd live under it.
We catalog 200+ of them. The pattern is always the same: a noble goal, a measurable proxy, and a population smart enough to game the proxy without touching the goal.
The applied version.
Every perverse incentive has a shape. We've documented over two hundred of them and the anatomy is identical: a sympathetic goal, a shortcut to measuring it, a population that prefers the shortcut to the goal, and a delay before the damage is visible. You can predict the failure before you ship the rule if you know the anatomy.
The Cobra Effect is the most famous example, but it's not the most important one. The most important ones are quiet: the U.S. opioid crisis (doctors graded on pain scores, OxyContin marketed as non-addictive, the proxy moved while the outcome quietly collapsed), U.K. ambulance response times (paramedics gaming the start clock to stay under the 8-minute target), or the YouTube algorithm rewarding watch-time and accidentally radicalizing teenagers. None of these systems wanted what they got. All of them got exactly what they paid for.
The professional move is a pre-mortem. Before launching any new rule, metric, or policy, ask the room one question: "If we were going to game this, how would we game it?" The answer is usually obvious within five minutes — and so is the fix. This single habit prevents more damage than any post-launch monitoring system.
Pre-mortems require psychological safety. Most organizations implicitly punish the engineer who points out the loophole in the executive's pet program. The cultural design problem (rewarding the messenger) sits inside the technical design problem (anticipating the failure). Both are solvable. Neither is solved by accident.
British colonial Delhi paid a bounty for dead cobras. Citizens started breeding cobras to kill them for the bounty. When the program was canceled, the breeders released them. Cobra population: up.
You will run a live pre-mortem on a real policy or feature your organization is about to ship. Cohort red-teams it; you bring the findings home.
- →The 200+ entry Perverse Incentives database — yours for life, by API and PDF.
- →Five pre-mortem templates by domain (HR, product, policy, sales, AI).
- →Aaron's keynote-grade case studies (opioid crisis, NHS targets, COMPAS, FB feed) walked end-to-end.
The defining feature of a perverse incentive is:
Design a perverse incentive on purpose. Pick a goal you care about and write the dumbest rule that would technically reward it while destroying it.
Hint: This is the 'red team' move. If you can imagine it, somebody in your org will too.