Incentives

When it comes to humans, you can usually answer the “why?” question about behavioural observations by examining the incentives. This is especially true in economics, but also true of nearly everything in life, such as why politicians ignore their constituents or adopt unpopular policies. There’s a popular catchphrase to describe this kind of analysis: “follow the money”.

Life presents two distinct approaches to navigating its complexities: engaging with the immediate, visible game according to established protocols, or recognizing and operating within the broader metagame—the system that surrounds and shapes the game itself. The first approach resembles single-dimensional chess, while the latter expands into multi-dimensional strategic thinking. Understanding Incentive Structures # This conceptual framework applies across diverse domains of human activity. One effective pathway for transitioning from game-level to metagame thinking involves analyzing incentive structures that drive behavior. By understanding what motivates different actors within a system, you can transform potentially adversarial interactions into collaborative opportunities where all participants benefit.

The Origin of a Philosophy # During an exchange on Reddit—one of those moments when digital discourse became more heated than collaborative—I found myself articulating a concept that has lingered persistently in my thoughts: the idea of “transcending beyond surface narratives.” This phrase, spontaneously expressed in that context, actually represents a philosophical framework I’ve been developing for years. I’ve often contemplated writing a comprehensive work extending the late anthropologist David Graeber’s brilliant Bullshit Jobs, which would expand his critique beyond occupational structures to encompass broader societal systems and cultural constructs.

One of the fascinating realities in the startup ecosystem, particularly within venture-funded companies, is how perception can sometimes outweigh immediate fundamentals in determining valuations. Many founders successfully secure substantial funding at impressive valuations based largely on the promise and potential of future business growth rather than current financial metrics. The Venture Capital Incentive Structure # The venture capital model operates with a distinctive incentive structure. VC firms typically earn revenue through management fees calculated as a percentage of assets under management, with additional performance incentives when investments appreciate in value. This structure naturally encourages pursuit of companies that can rapidly increase in valuation and attract subsequent funding rounds at higher prices.