Goodhart’s law can be stated as follows:

When a measure becomes a target, it ceases to be a good measure

All metrics of evaluation have the potential to be abused. The metric of evaluation shapes the incentives. The incentive shapes the action.

Let’s consider this across a range of domains.

Goal setting

Your goals may sound like this:

• Study 4 hours per day
• Read 20 books this year

Why might these be bad goals?

In the first case, you are only focusing on the time spent studying, not on what is being completed. It is an excuse for inefficiency.

I tutored high school students for three years. A common detractor was counting the hours spent studying rather than what was actually getting done.

In practice, there is a room for both. Counting hours can be motivating. It can remove procrastination by focusing on the process instead of the product. But sometimes you need to step back to look at what is actually being done.

The second goal of reading 20 books emphasises quantity over quality. It incentivises speed reading and skimming. It cultivates the mentality that “I need to finish this book as quickly as possible”. It overlooks the more important thing about reading: learning.

Corporate Incentive Schemes

Employee incentive schemes sometimes provide bonuses for efficiency. It might be a bonus for making 20 calls, or 10 interviews, or 5 excel valuation models. The problem with these incentives schemes is that they prioritise quantity over quality. They fail to reward high quality work.

Economic and Financial Measures

When a feature of the economy is picked as an indicator of performance people start to game it.

Similarly, when annual net income is the corporate objective, creative accounting measures emerge.

The greatest CEOs are successful because they convince shareholders to withhold judgement of present earnings in favour of the narrative of future earnings. Jeff Bezos sold investors the idea of delayed gratification. Elon Musk has done much the same.

Schooling System

In school you are given one objective: maximise your grade. This focus on one number is detrimental to your actual learning. It incentivises you to memorise for a test, then promptly forget it all to ready up for the next one. It encourages gaming the system over meaningful learning.

Conclusion

So, whenever you feel yourself gaming a target, ask yourself if you are falling prey for Goodhart’s law. Understanding Goodhart’s law is the first step to awareness. And awareness is the first step towards meaningful change.

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