Check Your Incentives Before You Judge
You'd probably do the same thing if their incentives were dangled in front of you.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 3
- Confidence
- 85%
Housel builds on Benjamin Franklin's line that to persuade you should appeal to interest and not to reason. People chronically underestimate the power of incentives: everyone thinks their moral boundaries are fixed, but dangle a $6 million bonus and those boundaries quietly shift — often subconsciously. So when you see someone doing something you find wrong, you're probably underestimating the odds you'd do the exact same thing with their incentives. He illustrates with 2008: Americans blamed 'greedy bankers,' but anyone offered a $6M bonus to package subprime bonds would likely have done it too. The lesson isn't to excuse behavior but to correctly diagnose it — the answer to 'how could people do that?' is usually incentives, and they come in social, tribal, and political forms, not just financial.
Origin
Housel roots this in Franklin's maxim and his own observation during the 2008 financial crisis, when public blame of 'greedy bankers' overlooked how anyone with a multimillion-dollar bonus incentive would likely have made the same choices.
Core principles
- 01If you would persuade, appeal to interest, not to reason (Franklin).
- 02People underestimate how much their own morality bends under incentives.
- 03Seeing someone behave badly, you likely underestimate the odds you'd do the same with their incentives.
- 04Incentives are financial, social, tribal, and political — not just money.
How to run it
- 1
Reach for incentives, not character
When someone behaves in a way you find wrong or baffling, look first at the incentives they faced rather than assuming a defect of character.
Pro tip The answer to 'how could people do that?' — in business, in wars, anywhere — is usually some form of incentive.
- 2
Assume your own boundaries would move
Recognize that your moral boundaries are not as fixed as you think; a large enough incentive would shift them, often subconsciously.
Watch out The shift is subconscious — people don't even notice their morality bending under incentives.
- 3
Account for non-financial incentives
Look beyond money to social, tribal, and political incentives that push people toward behavior they'd otherwise find repugnant.
Pro tip To actually change behavior, change the incentives rather than making a better argument.
In the wild
After the 2008 crisis, Americans blamed greedy Wall Street bankers for wrecking the economy. Housel argues that if you'd worked at Bear Stearns in 2006 and been told 'package these subprime bonds and we'll give you a $6 million bonus,' you would very likely have done exactly the same thing.
→ The point isn't to absolve the bankers but to show that incentives, not uniquely bad character, drove the behavior — so we underestimate our own moral pliability.
Common mistakes
Assuming fixed moral boundaries
Believing 'my morals are right here and wouldn't move' ignores how subconsciously and powerfully incentives shift everyone's behavior, including your own.
Is it for you?
Best for
Anyone analyzing why people or organizations behave the way they do — investors, leaders, analysts.
Not ideal for
Situations requiring firm moral accountability where 'incentives made them' becomes an excuse.
From the transcript
“if you would persuade appeal to interest and not to reason”
“we underestimate the boundaries of our morality when we don't understand the power of our incentives”
From the episode
Morgan Housel: How to ACTUALLY Build Wealth, Investing to Gain Financial Independence
Morgan Housel