 Charles Munger once said, show me the incentive and I'll show you the outcome. And this remains as true today as ever. Understanding the structure of incentives in the system is key to understanding how and why it operates the way it does and why it continues in the same path, irrespective of what the stakeholders say. We need to get an understanding for not just the points of possible collaboration but also the points of competition and where that lies is largely a function of the structure of incentives. Incentives can be both positive and negative. Positive incentives are rewarding while negative incentives are punishing. A positive incentive would be like a bonus payment for doing something, while a negative would be, for example, a fine. A subtle combination of positive and negative incentives are used by organizations to direct us in different directions. For example, as part of environmental regulation, the government will use a combination of negative incentives such as banning certain polluting activities but will also use positive incentives such as subsidies for certain activities that are seem to be beneficial to the environment. If we want to change the system, we need to be aware of how those incentives are working to either resist change or as potential sources for enabling it. To dig further into this, we can use game theory to gain a more rigorous analysis of the structure of incentives that people find themselves under. Likewise, behavioral science can be used to better understand how people really behave. Game theory works by seeing the interactions and organizations we form part of as games. A game tries to capture the dynamic where autonomous agents that have their own goals are interdependent in affecting some joint outcomes. A game has three major elements. Players, strategies, and payoffs. A player is a decision maker in a game. A strategy is a specification of a decision for each possible situation in which a player may find themselves. A payoff is a reward or loss that players experience when all the players follow their respective strategies. Games are played over some mutually desired resources. The resource is whatever is of value to the people in the organization, the agents in the game. A key consideration shaping the overall game dynamic is whether the total value distributed out to all agents remains constant, irrespective of their actions, or can it grow or decrease depending on their capacity to cooperate. Constant sum games are games in which the sum of the player's payoff add up to the same number. This makes for games of pure competition. What one gains, the other loses. Zero sum games are a special case of constant sum games in which choices by players can neither increase nor decrease the available resources. One can see this in the game Paper Rock Scissors or in most sporting events like basketball. In zero sum games, the relationship between the agents' payoffs are negatively correlated, which is called negative interdependence, meaning individuals can only achieve their goal via the failure of another agent, and this creates an attractor towards competition. These games are called strictly competitive because there are no incentives for cooperation. For example, basketball is a strictly competitive dynamic as only one side can win and there is no advantage from cooperating. Non-constant games or non-zero sum games are those in which the total value to be distributed can increase or decrease depending on the degree of cooperation between actors. For example, through the members of the business working together, they can create more value than working separately. Thus, the whole payoff gets bigger. Equally, the total payoff may get smaller through conflict, like in an arms race between two gangs in a city. In non-zero sum games, the outcome for agents is positively correlated. If one gets more, the other will too. If one gets less, then the other will too. With non-zero sum games, we can get positive interdependencies between the agents, meaning members of a group come to share common goals and perceive that working together is individually and collectively beneficial and success depends on the participation of all the members leading to cooperation. A cooperative game is one in which there can be cooperation between the players and they have the same cost. Thus, cooperative games are an example of non-zero sum games. This is because in cooperative games either every player wins or loses. Cooperation may be achieved through several different possibilities. It may be built into the dynamics of the game, as would be the case with a positive sum game where payoffs are positively correlated. In such a case, the innate structure of the game creates an attractor towards cooperation because it is both in the interest of the individuals and the whole organization. A good example of this is the mutually beneficial gains from trade and goods and services between nations. If businesses or countries can find terms of trade in which both parties benefit, then specialization and trade can lead to an overall improvement in the economic welfare of both countries with both sides seeing it as in their interest to cooperate in this organization because of the extra value that is being generated. Equally, cooperation may be achieved by external enforcement by some authoritative third parties such as governments and contract law. Here we cooperate in a transaction because the third party is ensuring that it is in our interest to do so by creating punishments or rewards. Likewise, cooperation may be achieved through peer-to-peer interaction and feedback mechanisms. For example, rating systems on eBay work to ensure that the sellers act in the interest of the buyers because they have the power to leave negative feedback if they don't, which will affect their future sales. A non-cooperative game is one where an element of competition exists and there are limited mechanisms for creating institutions for cooperation. This may be because of the inherent nature of the game we are playing. That is to say, it is a zero-sum game that is strictly competitive and thus cooperation will add no value, as is the case, for example, with the game chess. Non-cooperation may be a function of isolation, lack of communication, and interaction with which to build up the trust that enables cooperation. We see this within modern societies. As these societies have grown in size, they have transited from communal cooperative systems based on the frequent interaction of members to requiring formal third parties to ensure cooperation because of the anonymity and lack of interaction between members of large societies. Lastly, there may simply be a lack of formal institutions to support cooperation between members. An example of this might be what we call a failed state where the government's authority is insufficiently strong to impose sanctions and thus cannot work as the supporting institutional framework for cooperation. Incentive mapping is important because it lets us see the somewhat invisible fields of incentives that are acting on all of us every day. It tells us about the underlying structure of why and where conflict, competition, and cooperation arise and why. It also points us in the direction of possible ways to realize new outcomes.