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"1. I have only just started my current career in finance, so I am hesitant to provide an example of perverse incentives for this role, but I am no stranger to the topic. One of the most notable examples from a work experience comes from my time in management for a luxury retail store. Sales performance targets were always the topic of discussion between our stores' associates, management, and even district management. As a store that performed very well in the district, we were often subject to performance bonuses. Though great in the moment, I now see that these bonuses may have been an example of a perverse incentive. By incentivizing our team with bonuses based on sales targets, our products were subject to misrepresentation and sometimes even unethical selling practices just so teams would make their goals.

Casting a wider net, this can be applied to a multitude of situations which incentivize performance in terms of "goals" and "targets". These arbitrary measurements of performance often undermine the intended purpose of them. Not to say that all goals or targets are bad, because that is simply not the case. There is, however, a conversation to be had about the validity of these targets when discussing indicators of "good" performance.

2. The two other economic topics I have chosen are as follows: adverse selection and the principal agent problem. Both topics can also be found in Chapter 2: Incentives Matter on pages 37 and 41, respectively. Wheelan discusses adverse selection in terms of standardization of pay for teachers in the US. Basically, studies show that the most talented teachers in our education system are oftentimes good at other professions as well. These teachers are quick to leave the profession as they can identify other professions in which pay is more related to productivity, not just a standardized pay structure. A real-world example of adverse selection is most certainly present in the insurance realm. Individuals suffering from health concerns are more likely to purchase insurance policies than those who are fit and healthy, resulting in adverse selection. This can ultimately lead to higher insurance premiums for all.

The principal agent problem emerges when a principal (employer) employs an agent (employee) who has incentives to perform in ways that are not necessarily in the best interest of their employer. An example of executives from a company exercising their own stock options for personal gain is proposed. A real world and very prevalent example of the principal agent problem can be found in American politics. Oftentimes voters (principals) elect politicians (agents) to fairly represent the majority interest. Unfortunately, politicians are often motivated by external incentives to push their own, or large companies lining their pockets, agendas. "