Incentives: ask what the adviser gains if you say yes

The agent calls this policy the best one. It also pays him the most.

Both things can be true at once, and you only hear the first. He has handled your father's papers for years. He comes home, has chai, opens three brochures on the table and puts a finger on one. "This is the best one for you." You nod, because he knows the subject and you do not.

The model

The model is called incentives. An incentive is whatever a person gains when things go one way and not the other: money, a target met, less work, a good name. Charlie Munger, the investor, kept returning to this one idea: to understand what someone does or recommends, look first at what they are rewarded for.

It is not a way of saying people lie. Someone can believe every word of their own advice and still be pulled by what the advice does for them. The pull is quiet. The policy that pays more is the one whose good points come to mind first.

Kavita and the three brochures

Kavita is 31 and teaches at a school in Nagpur. She wants a policy, and the agent has brought three. He recommends the third, warmly and with reasons.

Before she says yes, she asks herself one question: what does this person gain if I say yes?

Then she asks him, in a plain voice with no edge in it: "Do you earn the same on all three, or is it different?" He says the third pays him more. He is not embarrassed, and he does not need to be. It is his job.

Nothing about the policy has changed. What has changed is how Kavita listens. "Best" is now one thing she has heard, not the answer. So she does two more things. She asks him for one good point and one weak point of each of the three, including the one he likes. And she shows the brochures to a cousin who has bought a policy herself and gains nothing whichever one Kavita picks.

She may still choose the third. If she does, the reasons will be her own.

The same question works on a builder's "limited period offer" and on an uncle who is very sure you should take the job in his city. What does the builder gain if you book this week? What does the uncle gain if you move close by? The answer may be harmless. It is still worth knowing before you say yes.

The trap

The trap is turning suspicious. A shopkeeper gains when you buy his rice, and the rice can still be good. If you treat every piece of advice as a trick, you are left alone with your decision and with less to go on than before. The question is for weighing the advice, never for accusing the person.

Turn it on yourself as well. What do you gain by agreeing quickly? Sometimes it is only the relief of being done.

One thing to try today

Pick one piece of advice from this week that is waiting for your yes. Before tonight, write one line under it: "What does this person gain if I say yes?" Then write a second line: who can I ask who gains nothing either way?

This is a way to think, not financial, medical or legal advice.

Each Sunday: one mental model and one real decision to try it on. The library is at /models.