[“Almost all human behavior can be explained by incentives”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). Naval treats this as natural law. [“Incentives are everything”](transcripts/tim-ferriss-faq.md#Career Paths For Software Engineers). [“Incentives are superpowers”](transcripts/tim-ferriss-faq.md#Career Paths For Software Engineers). They’re the ultimate force multiplier for human behavior. Master incentives and you control complex systems.
He follows Charlie Munger: [“Never, ever, think about something else when you should be thinking about the power of incentives”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). Naval made this his religion. “If you can work on incentives, don’t work on anything else”. This wisdom comes from studying books and requires sound judgment to apply.
The principal-agent problem shows how misalignment destroys getting rich. [“A principal’s incentives are different than an agent’s incentives”](transcripts/principal-agent.md#A principal’s incentives are different than an agent’s incentives). Owners want business success. Agents want to look good or get rich personally. “Agents have a way of hacking systems”. These problems compound over time. You must iterate continuously to maintain alignment.
[“People aren’t coin-operated”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). [“The good ones are not just looking for money—they’re also looking for status and meaning”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). Understanding this requires self-awareness about your own deepest desires. Good design needs taking responsibility.
[“When you do business deals, it’s better to have an aligned partnership where you both have the same incentives”](transcripts/principal-agent.md#When you do deals, it’s better to have the same incentives)
This creates true freedom. Aligned incentives eliminate zero-sum games that destroy genuine happiness.
[“People are much more honest with their actions than they are with their words”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). Watch what they do, not what they say. [“You have to get the incentives right to get people to behave correctly”](transcripts/principal-agent.md#If you can work on incentives, don’t work on anything else). This requires strategic thinking: people optimize for what you measure and reward. Understanding incentive design becomes your unique expertise. Modern information systems often have perverse incentives that corrupt building reputation.