BaleNorge on Nostr: Framework on the dangers of incentives: The Cobra Effect Here's a famous story on the ...
Framework on the dangers of incentives:
The Cobra Effect
Here's a famous story on the power (or danger) of incentives:
There were too many cobras in India.
The British colonists, worried about the dangers of these venomous creatures, devised a plan to reduce the cobra population:
They offered bounties for cobra heads.
Some savvy locals developed a business model: Breed cobras, chop of their heads, turn in cobra heads and collect bounties.
The British realized what was happening and ended the policy.
In response, many of the breeders simply released their now-worthless cobras onto the streets, increasing the population of cobras.
The British viewed cobra heads as a simple measure of cobra elimination, so attached an incentive to turn in cobra heads.
The result? An incentive designed to reduce the cobra population actually increased it.
The Cobra Effect is an example of Goodhart’s Law, which says that when a measure becomes a target, it ceases to be a good measure.
Simply put, if a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure often loses its value as a measure.
Note: This is a critical issue I cover in my first book as it relates to the cultural pressure to use money as your sole measure of success. For more on the solution, preorder your copy now on Amazon or anywhere books are sold!
Once you internalize this framework, you see it all around you (particularly in the business world).
For example, senior leadership at Wells Fargo viewed new account openings as an easy way to track business growth, so it gave its junior employees target account opening goals. The result? Employees opened millions of fake accounts to hit their targets and Wells Fargo was fined billions for the fraud. #nostr
The Cobra Effect
Here's a famous story on the power (or danger) of incentives:
There were too many cobras in India.
The British colonists, worried about the dangers of these venomous creatures, devised a plan to reduce the cobra population:
They offered bounties for cobra heads.
Some savvy locals developed a business model: Breed cobras, chop of their heads, turn in cobra heads and collect bounties.
The British realized what was happening and ended the policy.
In response, many of the breeders simply released their now-worthless cobras onto the streets, increasing the population of cobras.
The British viewed cobra heads as a simple measure of cobra elimination, so attached an incentive to turn in cobra heads.
The result? An incentive designed to reduce the cobra population actually increased it.
The Cobra Effect is an example of Goodhart’s Law, which says that when a measure becomes a target, it ceases to be a good measure.
Simply put, if a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure often loses its value as a measure.
Note: This is a critical issue I cover in my first book as it relates to the cultural pressure to use money as your sole measure of success. For more on the solution, preorder your copy now on Amazon or anywhere books are sold!
Once you internalize this framework, you see it all around you (particularly in the business world).
For example, senior leadership at Wells Fargo viewed new account openings as an easy way to track business growth, so it gave its junior employees target account opening goals. The result? Employees opened millions of fake accounts to hit their targets and Wells Fargo was fined billions for the fraud. #nostr