Gaming of Systems
All human systems get gamed. People display great ingenuity in serving themselves at the expense of the system's intended purpose. Anti-gaming features are therefore a huge and necessary part of almost all system design.
Core Principle
"Dread, and avoid as much as you can, rewarding people for what can be easily faked." Systems that can be easily gamed ruin civilizations; systems that are hard to game (like cash-register-based operations) help civilizations.
Examples
| System | Gaming Method | Consequence |
|---|---|---|
| Workers' comp (California/Texas) | Fraudulent claims incentivized by system design | Factories moved to Utah (2% vs double-digit payroll costs) |
| Harvard Economics grades | Niederhoffer took only advanced grad courses (automatic A's) | Got A's without attending class |
| Derivative accounting | Westinghouse booked high interest income on risky hotel loans using past loss experience from safe loans | Billions in losses |
| Medicare cost projections | Simple extrapolation ignored incentive-driven behavior changes | Costs exceeded forecast by >1000% |
| Textile looms | New technology savings passed to buyers, not factory owners | 20 years of investment, still 4% returns |
Design Implications
- Make dishonest behavior mechanically difficult (cash registers, double-entry bookkeeping)
- Use sound accounting that doesn't reward short-term manipulation
- Impose severe, public punishment for identified miscreants
- Never reward what can be easily faked
- Anticipate second-order behavioral changes when changing incentive structures
Connection to Other Concepts
- incentive-superpower — the psychological engine behind all gaming
- second-order-thinking — gaming is a second-order effect of system design; ignoring it is the classic first-order error
- lollapalooza-effect — the worst gaming disasters involve multiple tendencies in confluence