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The Cobra Effect

There is an Asian city where buses didn’t take passengers during peak hours. The reason was that the bus drivers were getting a bonus to get to their destination on time.

Wells Fargo employees had to open a high number of bank accounts to meet their quota. They end up opening hundreds of accounts without the consent of the client.

The cobra effect was coined by economist Horst Siebert. It describes a perverse incentive that gets a contrary effect to what is intended.

To avoid the cobra effect make your mission clear, and reward behaviors that align with that mission.

If you put financial rewards above moral rewards, it will cost you money, and you will not achieve your goal.

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