Goodhart’s law

Physicists have long noted that observing some phenomena actually changes their nature. In finance, the equivalent is known as Goodhart’s law, after the British economist Charles Goodhart, who in 1975 argued that once a measure becomes a target, it loses the very properties that made it a good gauge to begin with.

—Robin Wigglesworth in the FT: ‘How a volatility virus infected Wall Street


“When a measure becomes a target, it ceases to be a good measure.”

Goodhart’s law – Wikipedia

One way in which this can occur is individuals trying to anticipate the effect of a policy and then taking actions which alter its outcome.

…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.

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