My son’s liking for a dog training DVD advocating the John Fischer methodology (it suggested an understanding of dog psychology rather than things such as ‘choke chains’) got me thinking about incentives.
I think that systems based on punishment are deeply flawed in that the anxiety they create is likely to inhibit performance. Reward versus no reward is much better, but this should be managed carefully. Rewards can also create poor overall performance as they can put the performer in a situations in which he has everything to gain by a particular outcome and nothing to lose if he takes too many risks to get it.
You can get this at the chessboard too. I once heard that in a crucial chess match each member of a particular team was offered a thousand dollar bonus if they won, nothing for a draw. Naturally this produced a tendency to go for a win no matter what the position required them to do, a recipe for potential disaster.
So what’s the solution to the incentive issue? Basically I think that optimal performance is produced when people take pride in their profession, so treat them with respect and they’ll do much better. Of course proper financial incentives are a good way of showing respect but this must not be done in too crass a manner.