The Cobra Effect

The failure mode in which an incentive, intended to fix a problem, perversely produces more of it because people optimize the reward rather than the real goal. Kyle tags it in Charlie Munger — The Psychology of Human Misjudgment against the FedEx night-shift case, where paying by the hour rewarded billable time instead of the rapid, fault-free task the employer actually wanted.

Context: The name comes from a colonial-era anecdote: a bounty on cobras led people to breed cobras for the reward, and when the bounty was scrapped the bred snakes were released — leaving more cobras than before. It is a canonical illustration of perverse incentives and Goodhart’s Law.

Where this appears

• Charlie Munger — The Psychology of Human Misjudgment — Kyle tags the Federal Express example, where paying the night shift by the hour rewarded the wrong thing (hours) instead of fast, fault-free performance.

Saved from Roam

• Related: #Incentives