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Goodhart's Law

  • Apr. 24th, 2006 at 6:45 PM
2009, googles, burning man, need-a-shave
I've got some big posts based on emails about a) pricing options, and b) pricing houses coming up (hopefully). But as an interlude, here is Goodhart's Law:

"Goodhart's law is the equivalent in the social sciences of the uncertainty principle in physics. Though it has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role. "

For example, suppose some social statistic is correlated with good things - like low unemployment. Once we declare it to be an important measure, and say that we want to reduce it, we will reduce the correlation. The reason is that we will tend to affect the statistic in the cheapest and simplest ways, which are probably going to be those which artificially inflate the statistic without addressing the problem its supposed to measure. The correlation measured "in the wild" and the correlation once we start targetting this statistic will usually be different.

The analogy to Heisenberg's principle is fascinating...

Comments

( 24 comments — Leave a comment )
[info]mlinksva wrote:
Apr. 25th, 2006 06:09 am (UTC)
I think the Lucas critique may be a more general equivalent of the uncertainty principle in economics. Goodheart's Law was very specifically about monetary policy (I, admittedly an ignoramous, had never heard of it). I added a link to Lucas on the Goodheart's Law wikipedia article.
[info]pearmeson wrote:
Apr. 26th, 2006 01:58 am (UTC)
It sounds to me like it would be more accurate to characterize the Lucas critique as an assertion that a hidden variables theory is necessary and desirable, in order to fully characterize the underlying structure that leads to the apparent uncertainty relation of Goodhart's Law.

I hesitate to take the analogy any farther by mentioning Bell's Theorem.
[info]fare wrote:
May. 2nd, 2006 04:49 am (UTC)
It's worse than that!
I've described this phenomenon in the section
Statistics vs Cybernetics of my essay Government is the Rule of Black Magic. Nice to know it well-known and has a name.

Of course, Governments keep sticking to the blessed Statistics beyond the point where it is utterly meaningless, and until even their expedients can't improve the blessed Statistics. Then, they reach the Drudge, and all they can do is adjust the definition and expand their action accordingly, everytime with a similar result, with nothing to stop them but their ultimate failure and fall, taking the whole society down with them, that will find a new set of rulers to start a new cycle from this empoverished point.

Question: how do we escape the downward spiral?
[info]vincesatterly wrote:
Aug. 11th, 2008 06:35 am (UTC)
People everywhere are encouraged to do all they can to distribute the ideas of Maoism as the most effective means to liberation.
[info]omarjarvie wrote:
Aug. 11th, 2008 10:02 am (UTC)
In which case, the next question is, How do we put it right. That is the constructive way. That can lead to good results.
[info]katyafizum wrote:
Jul. 16th, 2008 03:29 pm (UTC)
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[info]kimvallient wrote:
Aug. 6th, 2008 05:30 am (UTC)
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[info]denverkisabert wrote:
Aug. 11th, 2008 05:41 am (UTC)
I need population dynamics information, as well as trophic interactions between species. Reply from Rainer PM: In 'Search FishBase', 'Information by Topic', click on the 'Ecopath Parameters' radio button.
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Aug. 11th, 2008 08:06 am (UTC)
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Aug. 11th, 2008 08:20 am (UTC)
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Aug. 11th, 2008 08:27 am (UTC)
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(Anonymous) wrote:
Apr. 25th, 2006 02:27 pm (UTC)
So could this mean that the Austrian's focus on the money supply and the Fed's focus on the interest rate are misguided--that the very fact they pay attention to these things makes them meaningless?

Or am I misunderstanding something?
[info]cesarfinke wrote:
Aug. 11th, 2008 05:52 am (UTC)
They do pay attention to what _executives_ want. So, things like PIM programs tend to be directed at the power-user who manages all of his/her own stuff, like his cell phone list, project management, calendar, and the like.
[info]emiliosieber wrote:
Aug. 11th, 2008 06:02 am (UTC)
5 Misunderstood or am I misunderstanding. k warning. . . ] - Warhawk (PS3) body,table,td {font: 10pt Arial;} Warhawk (PS3) - 1.
[info]nonnihil wrote:
Apr. 25th, 2006 02:49 pm (UTC)
This is actually one of the reasons that I am more suspicious of "market-oriented" or "incentive-driven" policies than of top-down economic planning: The market, with proper incentives, will be vastly more efficient at forging the relevant measured result; economic planners with their usual inefficiencies might actually address the underlying problem by mistake.

For instance, in my old home town, town leaf-and-branch pickup was privatized under an incentive system in which the private contractor's pay was reduced based on the amount of yard material left on the street on collection day. So the private contractor simply moved collection day earlier in the spring to before the growth season for most of the local plants (except for those parts of town where most of the politicians live -- no point in jeopardizing the contract for futures years!). The old government-provided service had naively collected leaves and branches, not realizing how much more efficient it would be for them to instead not collect leaves and branches; the private contractor turned the system from mere government inefficiency to simple deadweight rent-gathering.

In short, a corrolary to Goodhart: Market-based solutions will make the indicator meaningless much more quickly and efficently.
[info]awesomescampi wrote:
Apr. 25th, 2006 03:45 pm (UTC)
The reason is that we will tend to affect the statistic in the cheapest and simplest ways, which are probably going to be those which artificially inflate the statistic without addressing the problem its supposed to measure.

Or the problem is contributed by several factors, and by eliminating one of the factors just makes the others more influential as a result eliminating any future correlation from the original variable(if it remained steady).
[info]jruspini wrote:
Apr. 26th, 2006 02:01 am (UTC)
Yes, this is one of the deepest worries with ideas like futarchy or legislation-linked markets. The latter have a libertarian slant insofar as they mitigate the state's ability to redistribute wealth, but if they were actually widely used, these effects might be canceled-out -- or worse. Maybe the state and its taxing/spending would balloon as it would be more tolerable given the recourse of hedging against it.
[info]patrissimo wrote:
Apr. 28th, 2006 04:37 am (UTC)
Re: Google's Pagerank
well, we've already seen taxing/spending balloon because its tolerable. I think that's the greatest cause of the difference in tax rates between the 19th and 20th centuries. We are so rich that the half our money the government takes isn't worth that much to us. In the old days, people rioted over tiny taxes that meant a lot more to their standard of living.
(Anonymous) wrote:
Apr. 27th, 2006 10:01 pm (UTC)
Google's Pagerank
It's also interesting to consider that law in the context of search engine's rankings isn't it? (specially, of course, in the context of Google's PageRank)

Thanks for posting this btw... quite a fascinating idea I'd never heard before.

-elzr.com
[info]patrissimo wrote:
Apr. 28th, 2006 04:36 am (UTC)
Re: Google's Pagerank
Oh, yes, indeed. That is a perfect example! That's why the search engine vs. spam thing is an eternal arms race, the search engines develop new techniques to sift out spam, the SEO's optimize to avoid it, etc. etc.
[info]michelefigeq wrote:
Jul. 16th, 2008 06:12 am (UTC)
Author of Startup, Beyond the Myths mahlon says: # May AM Thanks for the post on Google's IPO and its Don't Be Evil philosophy.
(Anonymous) wrote:
Jun. 28th, 2007 01:07 pm (UTC)
Paris Hilton to be released early this week
Hilton has professed in letters and phone interviews to want to change her partying ways.


(Anonymous) wrote:
Feb. 19th, 2009 08:42 pm (UTC)
Willow Laboratories
nice...





-----------------------------
http://willowlaboratoriesinc.com
http://willowlaboratoriesinc.org
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