Given a chance, we humans will exploit loopholes, especially to gain an unfair advantage. This is the Cobra Effect, a delve into the abuse of poorly planned incentives, and a massive showcase of poor government planning.
Here’s The History.
At one point during Britain’s rule in India, they faced an imposing cobra overpopulation issue within Delhi.
The British government placed a sum on every dead cobra shown to the officials. The initial project ran successfully, with a mass amount of cobras killed each day. The issue was that the bounty for each dead cobra offered more than the price of breeding and raising the snakes. So thus, the people found a loophole to farm cobras, get rich, and exploit the poor-risk analysis of the government.
In the end, the government cancelled this initiative, and all of those Cobra farmers were left with far too many cobras for one person. Therefore, they released their monetarily-worthless Cobras, resulting in an imposing cobra overpopulation issue within Delhi.
The Cobra Effect
Now this story is potentially ahistorical, only known through the anecdote of economist Horst Siebert. But I’ll focus on the result of this potentially misconstrued story, as Siebert then coined the Cobra Effect.
In short, the Cobra Effect is any situation where a given incentive directly rewards people for making the issue worse. It is the most direct example of a pervasive incentive, which is an umbrella that covers any situation with unintentional consequences from the intent of the designers.
These are mostly used in business, but a show of how people always will exploit loopholes.
So, How do we avoid this?
The main issue is poor risk analysis. That is the process of identifying and analyzing potential issues that could negatively impact key business initiatives or projects. Put simply, always plan ahead. However, that’s an oversimplified look at this.
Some basic strategies are:
- Consider thinking about the who, what, where, when, and why about your full choice.
- Look at your incentive, and put yourself in the position of the people you’re incentivising. See can you could take advantage of whatever system you’re creating.
- Look at related examples to see the mistakes in other people’s decisions.
This is simply a surface-level look at these concepts, and the methods of avoidance go far deeper than what I’ve covered. Regardless if you ever have to do risk analysis, I think this is an interesting look into this section of psychology.
If you’d like to learn more, I’ve linked an interesting article below. It covers the cobra effect, but goes into other examples, and the thinking of prevention.
Links
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