Unintended Consequences

When a well-intentioned intervention makes the original problem worse. The canonical label for this pattern is the Cobra Effect: British colonial authorities in Delhi offered rewards for dead cobras to reduce the population; enterprising residents began breeding cobras to collect the bounty; when the policy was cancelled, the breeders released worthless snakes, leaving Delhi with more cobras than before.

Sahil Bloom uses the Cobra Effect as a frame for several modern cases: government bailouts that create moral hazard (executives take on more risk when they perceive a government backstop), and stimulative monetary policy that produces the Cantillon Effect — new money flowing disproportionately to the wealthy and fueling speculative bubbles. The design error in each case is the same: the Incentives structure pays for a behavior other than the one intended.

Where this appears

• Cobra Effect 101 with the… (tweet) — Sahil Bloom’s thread on the Cobra Effect and modern policy examples.