This is the best response to the 2008 financial crisis I have seen: An op-ed by Nassim Taleb that says end banker bonuses. They encourage risk-taking with other people’s money.
Separation of risk-taking from consequences (you gamble, if you lose, other people pay) is an ancient problem. The Chinese government would be wise to take a page from Hammurabi’s code, which Taleb quotes:
If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.
During the Szechuan earthquake, hundreds of schoolchildren died when their schools collapsed. Surrounding buildings did not collapse. It turned out the schools were badly built. No builder was punished, much less put to death.
At the end of his op-ed, Taleb puts it very clearly and simply: “bonuses and bailouts should never mix“.
Thanks to Dave Lull.
More Large areas of medicine consist of the doctor or someone else gambling with your health.
An especially clear example is surgery. Surgeon are paid per operation. The more operations they do, the more money they make. If an operation kills you, the surgeon is still paid. No penalty for a bad outcome. Wonderful for the surgeon, terrible for the rest of us. The more corrupt the surgeon, the more surgery they will recommend. Taleb’s idea suggests that surgeons pay a fine if a patient dies. The size of fines a surgeon would be willing to pay for bad outcomes would be helpful information for patients, who must decide what to do.
Drugs and medical devices are more subtle examples. You pay upfront for the drug or device, which are always expensive. They often have bad side effects, for which, of course, you pay. The drug company or device maker loses nothing. Wonderful for them, bad for the rest of us.