Setting metrics

1. Objectives: Deep consideration of the ultimate objectives of the incentives are a critical first pillar. What does success look like? Not the surface level objectives — go deeper. Without upfront deep thought on objectives, intelligent incentive design is impossible.
2. Metrics: Establish metrics that you will measure to track success. Avoid the McNamara Fallacy — never choose metrics on the basis of what is easily measurable over what is meaningful. Identify a wish list of metrics with no regard for feasibility. Work backwards from there.
3. Anti-Metrics: Even more important than the core metrics, establish “anti-metrics” that you measure to track unintended consequences. Anti-metrics force you to consider whether your incentives are fixing one problem here, but creating another problem over there.
4. Stakes & Effects: Always consider the stakes: High = costly failure, hard to reverse Low = cheap failure, easy to reverse. If high-stakes, conduct a rigorous, second-order effects analysis. Iterate on metrics accordingly.
5. Skin in the Game: To avoid principal-agent problems, the incentive designer should have skin in the game. Never allow an incentive to be implemented where the creator participates in pleasure of the upside, but not the pain in the downside. Skin in the game improves outcomes.
6. Clarity & Fluidity: An incentive is only as effective as: (1) the clarity of its dissemination. (2) the ability and willingness to adjust it based on new information. Takeaway: Create even understanding playing fields for all constituents and avoid plan continuation bias.