Posts Tagged ‘Incentives to cheat’

Dukenfield’s Law of Incentive Management

August 15, 2010

Mark Kleiman, professor of public policy at the UCLA School of Public Affairs and editor of the Journal of Drug Policy Analysis, is a temporary guest-blogger for Ta-Nehisi Coates of The Atlantic Monthly.  He wrote a post on Friday about scandals in which educators were caught falsifying results of tests used to measure school performance and, in the process, came up with a new sociological “law.”

Mark Kleiman

A school superintendent allowing his staff to doctor students’ answers on a set of high-stakes standardized exams has something in common with a corporate CEO holding a bundle of stock options who practices “earnings management” via bogus asset sales. Each is responding to an intense incentive system by faking success rather than producing it.

One could formulate this as a general principle: any incentive to create a result also creates an incentive to simulate the same result. The corollary is obvious: the greater the incentive, the greater the temptation. Or, as W. C. Fields put it in You Can’t Cheat an Honest Man, “If a thing is worth winning, it’s worth cheating for.” Borrowing Fields’s real name, I propose to call this generalization Dukenfield’s Law of Incentive Management. Designers of control systems ignore Dukenfield’s Law at their peril, and ours.

A second corollary follows directly from the first: holding the level of audit effort constant and other things equal, the reliability of a measure will decline as the importance attached to it grows. To put the same thing another way: to maintain a given level of reliability, the resources invested in verifying any performance measure need to rise roughly in proportion to the stakes involved

via The Atlantic. (my bold-facing)

(more…)