Goodhart’s law, Campbell Law, Lucas critique

(W)

It states that once a social or economic indicator or other surrogate measure is made a target for the purpose of conducting social or economic policy, then it will lose that information content that would qualify it to play such a role.

The law was first stated in a 1975 paper by Charles Goodhart and gain popularity in the context of the attempt by the UK government of Margaret Thatcher to conduct MP on the basis of targets for broad and narrow money (The policy abandoned in early 1980s).

Closely related ideas are known under different names, e.g. Campbell’s Law (1976) (“The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be distort and corrupt the social processes it is intended to monitor.”) and the Lucas critique (1976) (“It argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. In his 1976 paper, Lucas drove home the point that this simple notion invalidated policy advice based on conclusions drawn from large-scale macroeconomic models because the parameters of those models were not structural, i.e. not policy-invariant, they would necessarily change whenever policy was changed. He suggests that if we want to predict the effect of a policy experiment, we should model the “deep parameter” (relating to preferences, technology and resource constraints) that governs individual behavior). We can then predict what individuals will do, taking into account the change in policy, and then aggregate the individual decisions to calculate the macroeconomic effects of the policy change. ” The Lucas critique was influential not only because it cast doubt on many existing models, but also because it encouraged macroeconomist to build microfoundations for their models.

Example given by Campbell – Test scores as an indicator

“Achievement tests may well be valuable indicators of general school achievement under conditions of normal teaching aimed at general competence. But when test scores become the goal of the teaching process, they both lose their value as indicators of educational status and distort the educational process in undesirable ways. (Similar biases of course surround the use of objective tests in courses or as entrance examinations.” – critique on the high-stakes test in US