(Un)healthy Games

Someone asked me what I think about health care reform. I’ll respond with a story.

An economist’s young daughter had been potty-trained, but it didn’t “take.” The child was having accidents and frustrating her parents. The economist thought he could solve the problem with incentives. He offered an M&M for every time she went to the bathroom properly. Within hours, the young lady was perfectly regular. Problem solved, he thought.

Only, a couple days later he noticed that every 10 minutes or so his daughter was going to the bathroom just a tiny amount and earning loads of M&Ms. Within days this 3 year-old had learned to game the system. She now had the power to earn enough chocolate to make herself sick.

That’s what worries me about changing the incentive structure for a vast swath of the economy with millions of producers and consumers. Even if we get the incentives just right, there’s a lot of smart people who will figure out how new system works and game the rules to earn more M&Ms. That’s not the intent of the new law, but that doesn’t matter. The rules are the rules.

This kind of thing is usually small potatoes. But not this time. That’s why I’m worried.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2014-09-05T18:17:04+00:00 March 25th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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