Goodhart's law is an adage named after British economist Charles Goodhart, who advanced the idea in a 1975 article on monetary policy in the United Kingdom, Problems of Monetary Management: the U.K. Experience:
Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.
It later became used to criticize the British Thatcher government for trying to conduct monetary policy on the basis of targets for broad and narrow money.
In a paper published in 1997, Anthropologist Marilyn Strathern generalized Goodhart's law beyond statistics and control to evaluation more broadly. The phrase commonly referred to as Goodhart's law comes from Strathern's paper, not from any of Goodhart's writings:
When a measure becomes a target, it ceases to be a good measure.
One way in which this can occur is individuals trying to anticipate the effect of a policy and then taking actions that alter its outcome.
There are numerous concepts related to this idea, at least one of which predates Goodhart's statement of 1975.Notably, Campbell's law likely has precedence, as Jeff Rodamar has argued, since various formulations date to 1969. Other academics had similar insights during this time period. Jerome Ravetz's 1971 book Scientific Knowledge and Its Social Problems also predates Goodhart, though it does not formulate the same law. He discusses how systems in general can be gamed, focuses on cases where the goals of a task are complex, sophisticated, or subtle. In such cases, the persons possessing the skills to execute the tasks properly are instead able to achieve their own goals to the detriment of the assigned tasks. When the goals are instantiated as metrics, this could be seen as equivalent to Goodhart and Campbell's claim.
Shortly after Goodhart's publication, others suggested closely related ideas, including the Lucas critique (1976). As applied in economics, the law is also implicit in the idea of rational expectations, a theory in economics that states that those who are aware of a system of rewards and punishments will optimize their actions within that system to achieve their desired results. For example, if an employee is rewarded by the number of cars sold each month, they will try to sell more cars, even at a loss.
While it originated in the context of market responses, the law has profound implications for the selection of high-level targets in organizations.Jon Danielsson quotes the law as "Any statistical relationship will break down when used for policy purposes", and suggests a corollary to the law for use in financial risk modelling: "A risk model breaks down when used for regulatory purposes." Mario Biagioli has related the concept to consequences of using citation impact measures to estimate the importance of scientific publications:
All metrics of scientific evaluation are bound to be abused. Goodhart's law [...] states that when a feature of the economy is picked as an indicator of the economy, then it inexorably ceases to function as that indicator because people start to game it.
The law is illustrated in the 2018 book The Tyranny of Metrics by Jerry Z. Muller.
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Post-Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa and Jan Kregel. Historian Robert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes' original work. It is a heterodox approach to economics.
This aims to be a complete article list of economics topics:
In the economic study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.
The Lucas critique, named for Robert Lucas's work on macroeconomic policymaking, argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. More formally, it states that the decision rules of Keynesian models—such as the consumption function—cannot be considered as structural in the sense of being invariant with respect to changes in government policy variables. The Lucas critique is significant in the history of economic thought as a representative of the paradigm shift that occurred in macroeconomic theory in the 1970s towards attempts at establishing micro-foundations.
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Charles Albert Eric Goodhart, is a British economist. He was a member of the Bank of England's Monetary Policy Committee from June 1997 to May 2000 and a professor at the London School of Economics. He is the developer of Goodhart's law, an economic law named after him. He is the son of Arthur Lehman Goodhart, and the brother of William Goodhart and Sir Philip Goodhart.
Vladimir Vladimirovich Martynenko is a Russian sociologist, economist, and political scientist; Doctor of political sciences, Professor, Chief Scientific Officer, Institute of Socio-Political Studies under the Russian Academy of Sciences.
Campbell's law is an adage developed by Donald T. Campbell, a psychologist and social scientist who often wrote about research methodology, which states:
"The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."
Karl Brunner was a Swiss economist.
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Gaming the system can be defined as using the rules and procedures meant to protect a system to, instead, manipulate the system for a desired outcome.
The McNamara fallacy, named for Robert McNamara, the US Secretary of Defense from 1961 to 1968, involves making a decision based solely on quantitative observations and ignoring all others. The reason given is often that these other observations cannot be proven.
The first step is to measure whatever can be easily measured. This is OK as far as it goes. The second step is to disregard that which can't be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can't be measured easily really isn't important. This is blindness. The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide.
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