Goodhart’s Law

Goodhart’s Law

Concept

Goodhart’s Law is a principle in economics and management that states that when a measure becomes a target, it ceases to be a good measure. This principle was first proposed by economist Charles Goodhart in 1975, and it has been widely applied in various fields such as education, healthcare, and business.

The basic idea behind Goodhart’s Law is that when a measure is used as a target, it can create unintended consequences. For example, when a school or a business sets a target for student or employee performance, people may focus on achieving that target at the expense of other important goals. This can lead to a narrow focus on the target and neglect of other important aspects of the work.

Similarly, when a measure is used as a target, people may start to manipulate the measure in order to achieve the target, which can lead to distorted or false results. In healthcare, when doctors are given targets for patient outcomes, they may focus on treatments that are most likely to achieve those targets, even if they are not the best treatments for the patient. This can lead to a suboptimal care for patients.

Goodhart’s Law also applies to financial targets, when financial targets become the sole focus, it can lead to short-term thinking and neglect of long-term goals. This can result in companies making decisions that are not in the best interest of the company or its shareholders.

Application

Setting multiple targets: A business leader who is aware of Goodhart’s Law may choose to set multiple targets, rather than just one, to ensure that all aspects of the business are considered. For example, instead of just setting a target for financial performance, the leader may also set targets for customer satisfaction, employee engagement, and sustainability.

Focusing on process measures: A business leader who is aware of Goodhart’s Law may choose to focus on process measures, rather than outcome measures. Process measures are indicators of how well a process is working, rather than just the end result. This can help to ensure that the focus is on improving the process, rather than just achieving a target.

Emphasizing long-term goals: A business leader who is aware of Goodhart’s Law may choose to emphasize long-term goals, rather than short-term targets. This can help to ensure that the focus is on sustainable growth, rather than just achieving short-term targets that may not be in the best interests of the company or its shareholders.

Encouraging ongoing feedback: A business leader who is aware of Goodhart’s Law may choose to encourage ongoing feedback and adjust targets accordingly. This can help to ensure that the targets remain aligned with the overall goals of the organization and that they are not creating unintended consequences.

Further reading:

Contributor:

Will Bachman