Charlie MungerAnalytical perspectiveCM-P02PRODUCT ADVISORY COUNCIL
Examine incentives behind advice
Charlie MungerAnalytical perspectiveCM-P02The method
Examine incentives behind advice
Check what advisers and implementers gain from a proposal, then use independent evidence to correct incentive-driven bias.
When to use it
- Procurement, outside advice, sales mechanisms or reward design.
Ask yourself
- What does the proposer gain, and does that align with our intended outcome?
Put it into action
- List each party’s gains, costs and metrics that could be manipulated.
- Independently test key assumptions and compare doing no transaction or using a different fee structure.
Keep these limits in mind
- Having an interest does not mean someone is lying; evaluate the advice itself.
- Incentives do not explain all behavior, and punishment cannot replace capability and process development.