Goodhart's law

Goodhart's Law is an adage named after British economist Charles Goodhart, who originally formulated it in 1975. The law is often stated as: "When a measure becomes a target, it ceases to be a good measure." This principle has been widely recognized and applied across various fields, including economics, business management, healthcare, and public policy. Goodhart's Law highlights the unintended consequences that can arise when a specific indicator or metric, used to assess the performance of an organization or system, becomes the primary goal of that system.

Origins and Development

The law was first articulated by Charles Goodhart in a 1975 paper presented to a conference on monetary statistics held by the Bank of England. Goodhart, at that time an advisor to the Bank of England and a professor at the London School of Economics, observed that any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes. Although initially applied to monetary policy and economic forecasting, the principle has since been recognized as having broader implications.

Implications

Goodhart's Law suggests that when a measure of performance is turned into a target for conducting policy or evaluating success, it loses its reliability as a measure because people start to game the system or optimize for that specific metric at the expense of broader objectives. This can lead to a variety of negative outcomes, including:

• Perverse Incentives: Individuals or organizations may engage in behavior that is intended to meet targets but that is either unproductive or detrimental to the goals of the system as a whole.
• Metric Manipulation: There may be manipulation of the metric itself, through misreporting or through activities that improve the metric but not the underlying quality or performance it is supposed to represent.
• Short-termism: A focus on meeting short-term targets, even when doing so is at the expense of long-term objectives.

Examples

In education, if test scores become the primary measure of success, schools might teach to the test, neglecting broader educational goals. In healthcare, if the number of patients seen is used as a measure of success, quality of care may be compromised to increase quantity. In business, focusing solely on quarterly earnings can lead to underinvestment in long-term growth.

Criticism and Counterarguments

Some critics argue that Goodhart's Law is not a universal principle but rather a cautionary note about the limitations of quantitative metrics. They suggest that with careful design and constant refinement of metrics, the negative effects of Goodhart's Law can be mitigated. Others point out that the issue is not with the metrics themselves but with their misuse or overreliance.

See Also

• Campbell's Law
• Lucas critique
• Optimization (mathematics)
• Perverse incentive