Goodhart's Law
is a principle in economics and social science that states: "When a
measure becomes a target, it ceases to be a good measure." It highlights
the idea that once a particular metric is used as a basis for decision-making
or as a target for optimization, people and organizations will often find ways
to manipulate or game the system to achieve the desired outcome. Even if it
means compromising the integrity of the original measure.
British
economist Charles Goodhart; hence Goodhart’s Law, was first articulated in the
context of monetary policy. He observed that when policymakers target specific
economic indicators to achieve their goals, these indicators lose their
reliability as accurate measures of economic stability or performance because
people adjust their behavior to influence these indicators artificially.
Goodhart's Law
has broad implications beyond economics and can be applied to various fields,
including business management, education, and even social behavior. So, in a
business context, if a company sets a specific sales target as a key
performance indicator (KPI), employees may focus on meeting the target at the
expense of other important factors. This can lead to unethical practices or
short-term gains that harm the company's long-term prospects.
Knowing this,
use caution when employing metrics or measurements as the primary basis for
decision-making. People's behavior can and will likely change in response to
those metrics, often in ways that undermine the original intent or accuracy of
the measurement.
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