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  • Writer's pictureDeric Hollings

Perverse Incentives

 

Definition and examples

 

A “perverse incentive” may be defined as a negative unintended consequence of a performance goal, evaluation criteria, incentive program, regulation, policy, or system. As such, this term alludes to unreasonable encouragement for potentially harmful behavior on an individual or systemic level of operation.

 

Providing a salient example of how this perverse incentive structure works, one source states:

 

The British government, concerned about the number of venomous cobras in Delhi, offered a bounty for every dead cobra. Initially, this was a successful strategy; large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped. When cobra breeders set their now-worthless snakes free, the wild cobra population further increased. This story is often cited as an example of Goodhart’s Law or Campbell’s Law.

 

One can imagine how otherwise well-intentioned actions could result in the perversion of incentive structures, especially if people can profit from gamifying a system—strategic enhancement of a structure through creation of a similar experience to that of games in order to encourage productivity.

 

Addressing how perverse incentives operate in the healthcare field, one source illustrates:

 

1. Doctors collect more money for treating diseases than for preventing them, so they gloss over prevention with their patients.

 

2. Health problems often take years to develop, but since the relationships between insurers and the insured are frequently temporary, the insurance companies have little incentive to invest in the future health of the insured.

 

3. Because physicians are paid for doing things, they are being incentivized to provide services patients might not need.

 

Think of the physician who devotes a relatively little amount of time addressing a patient’s nutrition, physical fitness, social network, and other elements of holistic care. However, this doctor may order many diagnostics tests, prescribe lots of medication, or suggest surgical procedures which may be unnecessary.

 

In this way, understanding perverse incentives is arguably a necessary factor of personal responsibility and accountability in relation to one’s own health. You could simply leave the care of a perversely incentivized physical and search for one who practices holism. If you understand this matter on a micro level, I now invite you to consider it on a macro scale.

 

Personal anecdote

 

To understand the macro perspective, I ask that the reader forgive me a personal anecdote regarding perverse incentives. In 1998, I was an enlisted United States (U.S.) Marine serving the billet of military police (MP) aboard Camp Kinser, Okinawa, Japan.

 

Although traffic citation quotas weren’t authorized, there were rewards for MPs who achieved an elevated number of issued tickets. Whereas a quota serves as a rigid demand, a reward relates to a desirable incentive.

 

I served with MPs who not once wrote a single traffic citation, as they expressed pride in minimal performance. After all, they weren’t being demanded to write tickets, so why should they have done so?

 

I, on the other hand, gamified the incentive structure so that I could attain maximal rewards for career advancement. Competing with others of like mind, I once won a contest to see who could issue the most traffic citations in a single shift.

 

 

I burned through an entire ticket book in a night. That record was quickly broken by my friend “Nat.” What I didn’t realize at the time was that verbal accolades during military formations and positive written counseling statements in my service record book had a harmful effect on the recipients of tickets I awarded.

 

In my mind, at the time, I reasoned that motorists violated laws or orders so they deserved punishment. Unfortunately, I played a crucial role in some military members having their driver licenses revoked, driving privileges terminated, and in severe cases some people were sent back to the U.S. before their tours of duty were expected to end.

 

The unreasonable encouragement in the form of rewards which MPs enjoyed for issuing citations resulted in potentially harmful behavior with real-life consequences for my actions. On a macro level, my behavior benefitted the military command while damaging micro level Marines.

 

One COVID-19 measure that relates to a perverse incentive

 

Although I’m aware that many people seemingly wish to quietly ignore global responses to the COVID-19 pandemic and pretend as though the event never happened, I don’t count myself among their number. This is because I think it’s unhealthy to indulge irrational beliefs which lead to escapism.

 

Therefore, I think COVID-19 measures are worthy of examining—especially those related to perverse incentives—so that lessons may be learned moving forward. Regarding one such example, the following source opines:

 

When Congress passed the Coronavirus Response and Relief Supplemental Appropriations Act in December 2020, it authorized the Federal Emergency Management Agency (FEMA) to reimburse up to $2 billion in funeral expenses for deaths related to COVID-19 incurred through December 31, 2020.

 

Then, in March 2021, Congress extended this financial incentive, allowing FEMA to pull from $50 billion in general disaster relief funding through September 30, 2025, as part of the American Rescue Plan Act. So long as there is a National Emergency, families are empowered to seek financial reimbursement for the loss of their loved ones where COVID is present.

 

This well-intended gesture has created a strong incentive to conflate dying from COVID-19 with passing incidentally while infected with the SARS-CoV-2 virus.

 

Here, unreasonable encouragement for potentially harmful behavior on a systemic level of operation resulted in payment to people whose loved ones died with—though not necessarily from—COVID-19. Therefore, if hypothetical person X’s relative had the SARS-CoV-2 virus when being pronounced dead from having been struck by a bus, funds could be dispersed.

 

Each individual that received payment on a micro level in this regard perceivably took advantage of the macro perverse incentive structure and wasn’t necessarily acting in bad faith. Nonetheless, dying from a virus, and not merely with the virus, isn’t likely what the seemingly well-intentioned incentive was meant to address.

 

One wonders how many funds were misappropriated in this regard, as revenue from taxation could’ve been used elsewhere during the U.S. government’s botched response to the COVID-19 pandemic. Time will tell as to whether or not learned lessons will be applied moving forward.

 

Conclusion

 

Herein, I’ve addressed how otherwise well-intentioned actions may result in the perversion of incentive structures, especially when people can profit from gamifying a system. From a healthcare perspective, I’ve highlighted how focus on treatment rather than prevention serves as an example of a perverse incentive.

 

Likewise, I used a personal anecdote to illustrate how my own gamification of a reward system as an MP likely caused harm to people. As well, I used a COVID-19 example of perverse incentives regarding people who died with, rather than from, the SARS-CoV-2 virus.

 

One important takeaway lesson remains to be explored: That which may be incentivized can also be dis-incentivized. Before addressing how removal of perverse incentives may benefit micro and macro levels within society, at least within my current field, it may be important to understand the following information:

 

Iatrogenesis is the causation of a disease, a harmful complication, or other ill effect by any medical activity, including diagnosis, intervention, error, or negligence. First used in this sense in 1924, the term was introduced to sociology in 1976 by Ivan Illich, alleging that industrialized societies impair quality of life by overmedicalizing life. Iatrogenesis may thus include mental suffering via medical beliefs or a practitioner’s statements. Some iatrogenic events are obvious, like amputation of the wrong limb, whereas others, like drug interactions, can evade recognition.

 

Having served as a life coach since the ‘90s; having begun working in the field of mental, emotional, and behavioral healthcare in 2011; and having officially began practicing Rational Emotive Behavior Therapy (REBT) in 2021, I’ve observed a tendency of well-being services to pathologize the experience of death—regard or treat someone or something as psychologically abnormal or unhealthy.

 

For instance, clinician X may receive payment for treating client Y concerning bereavement issues. Bereavement is the natural experience of losing someone who is close to you.

 

By making the process of death and dying a stigmatizing experience of un-wellness, clinician X may be driven by a perverse incentive to convince client Y that the experience of death is a pathological situation. Therefore, many sessions may be required to remedy this supposed problem.

 

This is a uniquely Western approach to what comes natural, as Eastern cultures tend not to make death a scary, awful, and seemingly unbearable event. Arguably, the U.S. has an entire industry devoted to pathologizing death.

 

Dis-incentivization, that is the removal of perverse incentives on micro and macro levels within society, occurs in this regard when societal members learn about existentialism—and learn it early in life. Each of us who lives will surely die.

 

While the clinician X’s of the world may not be rewarded with generous reimbursement for services related to bereavement, the client Y’s of the world may benefit by preventative truth regarding death and dying. Therefore, I argue that potential harm from perverse incentives outweigh one’s unreasonable encouragement to practice such measures.

 

If you’re looking for a provider who works to help you understand how thinking impacts physical, mental, emotional, and behavioral elements of your life—helping you to sharpen your critical thinking skills, I invite you to reach out today by using the contact widget on my website.

 

As a psychotherapist, I’m pleased to help people with an assortment of issues ranging from anger (hostility, rage, and aggression) to relational issues, adjustment matters, trauma experience, justice involvement, attention-deficit hyperactivity disorder, anxiety and depression, and other mood or personality-related matters.

 

At Hollings Therapy, LLC, serving all of Texas, I aim to treat clients with dignity and respect while offering a multi-lensed approach to the practice of psychotherapy and life coaching. My mission includes: Prioritizing the cognitive and emotive needs of clients, an overall reduction in client suffering, and supporting sustainable growth for the clients I serve. Rather than simply helping you to feel better, I want to help you get better!

 

 

Deric Hollings, LPC, LCSW

 

References:

 

Bhattacharya, J. and Lamb, K. (2023, January 26). The downsides of financial incentives to diagnose COVID | Opinion. Newsweek. Retrieved from https://www.newsweek.com/downsides-financial-incentives-diagnose-covid-opinion-1776181

Gabriel, E. and Fenner, S. (2023, November 21). Perverse incentives | Overview & examples. Study.com. Retrieved from https://study.com/academy/lesson/perverse-incentives-definition-examples.html

Hollings, D. (2022, October 31). Demandingness. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/demandingness

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Hollings, D. (2023, October 12). Get better. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/get-better

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Hollings, D. (n.d.). Hollings Therapy, LLC [Official website]. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/

Hollings, D. (2023, May 18). Irrational beliefs. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/irrational-beliefs

Hollings, D. (2023, September 19). Life coaching. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/life-coaching

Hollings, D. (2022, December 2). Low frustration tolerance. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/low-frustration-tolerance

Hollings, D. (2023, April 24). On truth. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/on-truth

Hollings, D. (2022, November 7). Personal ownership. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/personal-ownership

Hollings, D. (2022, March 25). Rational emotive behavior therapy (REBT). Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/rational-emotive-behavior-therapy-rebt

Hollings, D. (2024, January 4). Rigid vs. rigorous. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/rigid-vs-rigorous

Hollings, D. (2022, October 7). Should, must, and ought. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/should-must-and-ought

Hollings, D. (2022, May 28). Stoically existential. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/stoically-existential

Hollings, D. (2022, November 15). To don a hat. Hollings Therapy, LLC. Retrieved from https://www.hollingstherapy.com/post/to-don-a-hat

Library of Congress. (2020, December 27). H.R.133 - Consolidated Appropriations Act, 2021. Retrieved from https://www.congress.gov/bill/116th-congress/house-bill/133

Library of Congress. (2021, March 11). H.R.1319 - American Rescue Plan Act of 2021. Retrieved from https://www.congress.gov/bill/117th-congress/house-bill/1319/text

Spacey, J. (2023, August 8). 11 examples of perverse incentives. Simplicable. Retrieved from https://simplicable.com/new/perverse-incentives

Wikipedia. (n.d.). Campbell’s law. Retrieved from https://en.wikipedia.org/wiki/Campbell%27s_Law

Wikipedia. (n.d.). Goodhart’s law. Retrieved from https://en.wikipedia.org/wiki/Goodhart%27s_Law

Wikipedia. (n.d.). Iatrogenesis. Retrieved from https://en.wikipedia.org/wiki/Iatrogenesis

Wikipedia. (n.d.). Ivan Illich. Retrieved from https://en.wikipedia.org/wiki/Ivan_Illich

Wikipedia. (n.d.). Perverse incentive. Retrieved from https://en.wikipedia.org/wiki/Perverse_incentive

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