But maybe the biggest problem associated with the economics-based incentive model of motivation, the agency model, is that it's easy to get the incentives out of alignment. And they could be out of alignment even a little bit, and they cause a ton of problems. So, for example, it's a famous story which I learned from my colleague, Mike Husein, whom you're going to hear from a little later on this, about Australia which began its civilization, modern western civilization anyway, as a prison colony for England. And at that time, you might have thought being sent to Australia from England particularly in the winter was a pretty good thing. Why not be in Sydney where the weather is pleasant? But it turned out the reason it was such a terrible thing to be sentenced to time in Australia was that, a very large proportion I think at one point a majority of people sent to Australia died. So even if you were sent there for a two or three year sentence, highly likely you might die. And the reason they were dying, Royal Commission investigated, is they were dying on the way over. And what were they dying of? Dehydration, disease, exposure, all things that were preventable. Well, the Royal Commission took a little look in this and they discovered that the English government was outsourcing the shipping of prisoners to Australia. They weren't doing it themselves. The private ship captains were taking the passengers over. And the way they were paying the ship captains was so much per passenger. So ten pounds or something for each passenger who they shipped, prisoner who they shipped, to Australia, right? Well, if you were a profit maximizing ship captain, who didn't have any scruples, the way you would make a lot of money is you would skimp on food. You would skimp on blankets and heat, you'd skimp on water. And actually, if the prisoners died, it was simpler for you because the boat didn't weigh as much. You just toss them overboard, and you didn't have to feed them. And that's what was happening. So the Royal Commission setup a alternative compensation system, which was very simple. It just paid the ship captains for the number of prisoners who walked off the boat on their own power in Sydney Harbor. And the death rate fell to maybe 2% from a majority through just a couple of percent. So we talk about rewarding A while hoping for B, that means the incentive system is hoping, let's say, to get passengers, prisoners, to Australia in an efficient, inexpensive way. That's B, but what they're actually rewarding was simply piling people on the boat, so it's unintended consequences. I've got a contemporary story about this, which is in a very different context, it takes place in outer space. And it takes place on the Mir space station, which was the Soviet era space station, which turned out to be a pretty remarkable piece of engineering at least robustness wise was in space for 20 years or so. And there was a moment where the Mir had an accident that was completely preventable. And we know the story about this, because there was a US astronaut on board with Cosmonauts and he told the story afterwards. Here is what happened on the Mir, it's a classic example of rewarding A while hoping for B. What happened on the Mir is that they were serviced every month by a spaceship that would be launched from Siberia, the ship called the Progress. And they would launch it full of oxygen, and food, and water, and whatever else they wanted, pizza. Ship it up and it would dock automatically with the Mir. They have this very elaborate computer and radar based system to pull it in and slowly dock. But then as soon as it was done docking and they had unloaded it, they filled it up with trash and they kicked it back into space and it would spiral down to earth and burn up in the process. Now, it worked pretty well except for the fact that it's incredibly expensive pizza delivery, right? Because you're burning up one of those ships every time, every month when you're servicing the Mir. So the guys on the ground, the mission control, decided maybe there's a way to do this without quite as much expense. The most expensive part, or one of the most expensive parts of the Progress, the ship that was coming up was the avionics, that is the system for docking the Mir. So what they decided to do was to see whether it was possible to launch the progress and dock it without all that fancy avionics. So they tried it out, and they got it up there and then they turned off everything. And they let the cosmonauts and the Mir steer it into the Mir. Now the problem with doing this, imagine parallel parking, right? Except in this case the curb is the Mir space station, and it's a bunch of pretty fragile stuff. There's no bumpers around it, right? It's got antennas and solar panels and stuff like that. The Progress is coming at you at 10,000 miles an hour, and they got to slow it down. It's hundreds of miles away. And they got to slow it down enough to dock. And if you bump, [LAUGH] you got a big problem, right? So the Progress is coming at them, and they can't see it. They can't find it. They're looking out the window trying to see where it is. And the radar image isn't clear and they got a camera on the Progress, but it can't quite pick the Mir out because it's looking at Earth behind it and it's white and they can't see it, right? And they finally get a glimpse of it and they try to slow it down, but they couldn't slow it enough. And it went zooming past them and unfortunately it missed them. But if it had hit them it would have been a huge disaster. So the cosmonauts got on the phone and they called mission control, and they said, hey this is really, really dangerous and it almost killed us. We can't do this again. What happened on the Mir space station was that the cosmonauts were paid a pretty big bonus for following orders. So it wasn't for a successful mission, it was for following orders. That's what they were rewarded for. That's what they were actually rewarding. That was A, while hoping for B, in this case, was a successful mission.
