Looks like Warren Buffet is picking a successor. Too bad an expert in Incentive Design didn’t help him come up with his selection criteria:

When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior.

Winner take all stock market games don’t reward the best investors, they reward the luckiest. It’s a spin-of-the-wheel that determines just which high-risk high-return investment hits pay dirt. Long term success doesn’t matter. The article also discusses the inventives investment managers face to screw their clients.

Categories: Business and Economics, Careers, Incentive Centered Design, Information Economics, Managing