A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally rewards people for making the issue worse. The term is used to illustrate how incorrect stimulation in economics and politics can cause unintended consequences.

In general, incentives are anything that persuade a person or organization to alter their behavior in the desired manner. It is emphasized that incentives matter by the basic law of economists and the laws of behavior, which state that higher incentives amount to greater levels of effort and therefore higher levels of performance.