Imagine you work as a server at a restaurant chain. The corporate office wants to decrease the time each group of guests spends in the restaurant so that they can increase the number of people who can eat at their restaurant per day. To get an understanding of this they need to find something that can accurately represent the amount of time someone spends in the restaurant but is readily available to them. This is called a measure, or a metric. The measure they decide to use is the time stamp when the servers input the orders and the time stamp of when the bill is closed.
Imagine that the company says they will give $100 to anyone who could shave 15 percent off of their previous month's average. Being smart servers, everyone begins to bring the check at the same time as the meal so they can close the account, but still serve the customer afterward. At the end of the month, the corporate office sees that all of the times are down, but they have the same number of customers per day.
This is a prime example of Goodhart’s law, which states that when a measure becomes a target, it ceases to be a good measure. This can be disastrous in public policy when most government programs utilize targets heavily. For example, when many people talk about the health of our current economy, they use the number of people on welfare. After several cycles of politicians targeting it, the number of people on welfare is drastically below the rate it was in 1996, while the percentage of people living in poverty has increased since then. The number of people living in extreme poverty has doubled since then. Another example is in interest rates. It was commonly held belief that lowering interest rates would force banks to lend more money and achieve increased growth, but after some central governments have begun to set negative interest rates, many banks have begun to just hold cash as a physical asset to prevent the negative interest rate.
So how can we adjust policies to prevent the inevitability of Goodhart’s Law? Some possible solutions are to communicate the goal of programs, but not communicate how it is going to be measured. In the example at the top, if the servers did not know how they would have be measured they would be unable to manipulate the system. Another option would be to only communicate the target if it is something they can’t change the accuracy of easily. For example, a system that targets a reduction in body mass index of students in public schools to reduce childhood obesity. It is impossible to make students grow taller to change their BMI, nor can focus on top performers to change averages. The system would be successful because the target is directly tied to obesity. That is not to say whether BMI is an accurate measure of health or fitness.
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