Peter Coy wrote an article for Bloomberg BusinessWeek titled Goodhart’s Law Rules the Modern World. Here Are Nine Examples.

« [Charles] Goodhart said 46 years ago [1975] in Sydney was this, which he jokingly termed Goodhart’s Law: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” »

« In other words, as the British anthropologist Marilyn Strathern later boiled it down: “When a measure becomes a target, it ceases to be a good measure.” Goodhart’s Law is a close cousin of Campbell’s law, which was enunciated around the same time by psychologist Donald Campbell, and the Lucas Critique by economist Robert Lucas. »

Here are some examples:

« The Bank for International Settlements documented in 2018 that European banks were getting around safety standards by “window-dressing” their financial statements to look safer at the end of each quarter. American banks had a harder time gaming the regulations because their results were evaluated on a quarterly average rather than at quarter’s end. »

« In 2015, a jury in Atlanta convicted 11 teachers of racketeering and other charges because they cheated on high-stakes standardized tests by altering and fabricating students’ answer sheets. Schools Superintendent Beverly Hall stood to receive a substantial bonus if system-wide test scores rose sufficiently. She died a month before the jury ruled, having long denied any wrongdoing. »

« In health care, Goodhart’s Law complicates efforts to rank hospitals. The New York Times reported in 2018 on a case where a sick, 81-year-old veteran was denied admission to the Roseburg Veterans Administration Medical Center in Oregon as part of the hospital’s attempt “to lift its quality-of-care ratings.” The hospital’s director acknowledged to the Times that being more selective had improved ratings, but denied that the hospital was turning patients away to improve scores. »

«What to do about this? It’s wise to get away from fixed, changeless rules that can be easily gamed. Also, measure what you actually want, not a rough proxy for it. Try using multiple criteria instead of a single standard. But the first step is simply to be aware of the problem. »

Charles Goodhart and Manoj Pradhan  wrote a book called The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival. 

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