The Importance of Goodhart’s Law

This ar­ti­cle in­tro­duces Good­hart’s law, pro­vides a few ex­am­ples, tries to ex­plain an ori­gin for the law and lists out a few gen­eral miti­ga­tions.

Good­hart’s law states that once a so­cial or eco­nomic mea­sure is turned into a tar­get for policy, it will lose any in­for­ma­tion con­tent that had qual­ified it to play such a role in the first place. wikipe­dia The law was named for its de­vel­oper, Charles Good­hart, a chief eco­nomic ad­vi­sor to the Bank of England.

The much more fa­mous Lu­cas cri­tique is a rel­a­tively spe­cific for­mu­la­tion of the same.

The most fa­mous ex­am­ples of Good­hart’s law should be the so­viet fac­to­ries which when given tar­gets on the ba­sis of num­bers of nails pro­duced many tiny use­less nails and when given tar­gets on ba­sis of weight pro­duced a few gi­ant nails. Num­bers and weight both cor­re­lated well in a pre-cen­tral plan sce­nario. After they are made tar­gets (in differ­ent times and pe­ri­ods), they lose that value.

We laugh at such ridicu­lous sto­ries, be­cause our so­cieties are gen­er­ally much bet­ter run than Soviet Rus­sia. But the key with Good­hart’s law is that it is ap­pli­ca­ble at ev­ery level. The japanese coun­tryside is ap­par­ently full of con­struc­tions that are go­ing on be­cause con­struc­tions once started in re­ces­sion era are get­ting to be al­most im­pos­si­ble to stop. Our so­ciety cen­tres around money, which is sup­posed to be a rel­a­tively good mea­sure of reified hu­man effort. But many un­scru­plous in­sti­tu­tions have got rich by pur­su­ing money in many ways that peo­ple would find ex­tremely difficult to place as value-adding.

Re­cently GDP Fetishism by David hen­der­son is an­other good ar­ti­cle on how Good­hart’s law is af­fect­ing so­cieties.

The way I look at Good­hart’s law is Guess the teacher’s pass­word writ large. Peo­ple and in­sti­tu­itions try to achieve their ex­plic­itly stated tar­gets in the eas­iest way pos­si­ble, of­ten obey­ing the let­ter of the law.

A spec­u­la­tive ori­gin of Good­hart’s law

The way I see Good­hart’s law work, or a tar­get’s util­ity break down, is the fol­low­ing.

  • Su­pe­ri­ors want an un­defined goal G.

  • They for­mu­late G* which is not G, but un­til now in usual prac­tice, G and G* have cor­re­lated.

  • Subor­di­nates are given the tar­get G*.

  • The well-in­ten­tioned sub­or­di­nate may recog­nise G and sug­gest G** as a sub­sti­tute, but such peo­ple are rel­a­tively few and far in­be­tween. Most peo­ple try to achieve G*.

  • As time goes on, ev­ery means of achiev­ing G* is sought.

  • Re­mem­ber that G* was for­mu­lated pre­cisely be­cause it is sim­ple and more ex­plicit than G. Hence, the per­sons, pro­cesses and or­ga­ni­za­tions which aim at max­imis­ing G* achieve com­pet­i­tive ad­van­tage over those try­ing to jug­gle both G* and G.

  • P(G|G*) re­duces with time and af­ter a point, the cor­re­la­tion com­pletely breaks down.

The miti­ga­tions to Good­hart’s law

If you con­sider the law to be true, solu­tions to Good­hart’s law are an im­pos­si­bil­ity in a non-sin­gle­ton sce­nario. So let’s con­sider miti­ga­tions.

  • Han­so­nian Cynicism

  • Bet­ter Measures

  • Solu­tions cen­tred around Hu­man Discretion

Han­so­nian Cynicism

Point­ing out what most peo­ple would have in mind as G and show­ing that in­sti­tu­tions all around are not fol­low­ing G, but their own con­voluted G*s. Han­so­nian cyn­i­cism is definitely the sec­ond step to miti­ga­tion in many many cases (Know­ing about Good­hart’s law is the first). Most peo­ple ex­pect uni­ver­si­ties to be about ed­u­ca­tion and hos­pi­tals to be about health. Point­ing out that they aren’t do­ing what they are sup­posed to be do­ing cre­ates a huge cog­ni­tive dis­so­nance in the think­ing per­son.

Bet­ter measures

Balanced scorecards

Tak­ing mul­ti­ple fac­tors into con­sid­er­a­tion, try­ing to make G* as strong and spoof-proof as pos­si­ble. The Score­card ap­proach is math­e­mat­i­cally, the sim­plest solu­tion that strikes a mind when con­fronted with Good­hart’s law.

Op­ti­miza­tion around the constraint

There are no generic solu­tions to bridg­ing the gap be­tween G and G*, but the body of knowl­edge of the­ory of con­straints is a very good start­ing point for for­mu­lat­ing bet­ter mea­sures for cor­po­rates.

Ex­trap­o­lated Volition

CEV tries to miti­gate Good­hart’s law in a bet­ter way than me­chan­i­cal mea­sures by try­ing to cre­ate a com­plete map of hu­man moral­ity. If G is defined fully, there is no need for a G*. CEV tries to do it for all hu­man­ity, but as an ex­am­ple, in­di­vi­d­ual ex­trap­o­lated vo­li­tion should be enough. The at­tempt is in­com­plete as of now, but it is promis­ing.

Solu­tions cen­tred around Hu­man discretion

Hu­man dis­cre­tion is the one thing that can presently beat Good­hart’s law be­cause the con­stant check­ing and recheck­ing that G and G* match. No­body will at­tempt to pull off any­thing as weird as the large nails in such a sce­nario. How­ever, this is not scal­able in a strict sense be­cause of the added test­ing and qual­ity con­trol re­quire­ments.

Left Anar­chist ideas

Left an­ar­chist ideas about small firms and work­groups are based on the fact that hi­er­ar­chy will in­evitably in­tro­duce good­hart’s law re­lated prob­lems and thus the best groups are small ones do­ing sim­ple things.

Hier­ar­chi­cal rule

On the other end of the poli­ti­cal spec­trum, Molbug­gian hi­er­ar­chi­cal rule com­pletely elimi­nates the me­chan­i­cal as­pects of the law. There is no let­ter of the law, its all spirit. I am sup­posed to take to­tal care of my slaves and have to­tal obe­di­ence to my mas­ter. The scal­a­bil­ity is en­sured through hi­er­ar­chy.

Of all pro­posed solu­tions to the Good­hart’s law prob­lem con­fronted, I like CEV the most, but that is prob­a­bly a re­flec­tion on me more than any­thing, want­ing a rel­a­tively scal­able and au­to­mated solu­tion. I’m not sure whether the hu­man dis­cre­tion sup­port­ing peo­ple are re­ally cor­rect in this mat­ter.

Your com­ments are in­vited and other miti­ga­tions and solu­tions to Good­hart’s law are also in­vited.