Goodhart’s Law

From Open Risk Manual

Definition

Goodhart’s Law states that any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes

Examples

  • The case against leverage ratios is that they may encourage banks to increase their risk per unit of assets, reducing their usefulness as an indicator of bank failure[1]

References

  1. The dog and the frisbee, Andrew G Haldane, Vasileios Madouros, Economist, Bank of England, 2012