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principal-agent problem, where the self-interest of the agent may lead to suboptimal results for the principal across a wide variety of circumstances.
Real estate agents tend to sell their own houses at higher prices compared with their clients’ houses, in large part because they are willing to leave them on the market longer. In
Moral hazard and principal-agent problems can occur because of asymmetric information, where one side of a transaction has different information than the other side;
When parties select transactions that they think will benefit them, based at least partially on their own private information, that’s called adverse selection.
distinguish subpopulations based on their risk profiles, as life insurers do for smokers.
signs of market failure, where open markets without intervention can create suboptimal results, or fail.
To correct a market failure, an outside party must intervene in some way. Unfortunately, these interventions themselves can also fail, a result called government failure or political failure.
For these new antibiotics to be useful in future doomsday scenarios, though, they must be used sparingly, only in cases where they are absolutely necessary.
That’s because each time they are used, the risk of bacteria developing resistance to them goes up.
dire
emerges: How can pharmaceutical companies get a return on their investment given current patent laws?
Drug patents are likely to expire or come close to expiring before the drugs are needed, effectively erasing most potential profits for the pharmaceutical companies.
These uncertainties lead to a second market failure of severe underinvestment in the development of new antibiotics, leaving us collectively vulnerable to future outbreaks.
According to a 2014 report commissioned by the U.S. Department of Health and Human Services, there is
a huge disconnect between the value of a new antibiotic for society and the value to the private market. In some cases, as for bacterial ear infections, the expected value to the private market is actually negative, while the value to society is estimated to be approximately $500 billion!
we are all free-riding on the development of these drugs, directly leading to their underproduction.
No one knows when these drugs will be needed, and given their typical ten-year development timeline, there is no time to waste.
Goodhart’s law summarizes the issue: When a measure becomes a target, it ceases to be a good measure.
“Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”
Both describe the same basic phenomenon: When you try to incentivize behavior by setting a measurable target, people focus primarily on achieving that measure, often in ways you didn’t intend. Most importantly, their focus on the measure may not correlate to the behavior you hoped to promote.
Koenigswald’s discoveries might have been more impressive still but for a tactical error that was realized too late. He had offered locals ten cents for every piece of hominid bone they could come up with, then discovered to his horror that they had been enthusiastically smashing
large pieces into small ones to maximize their income.
cobra effect, describing when an attempted solution actually makes the problem worse.
The Streisand effect applies to an even more specific situation: when you unintentionally draw more attention to something when you try to hide it.
Streisand Effect A related model to watch out for is the hydra effect, named after the Lernaean Hydra, a beast from Greek mythology that grows two heads for each one that is cut off. When you arrest one drug dealer, they are quickly replaced by another who steps in to meet the demand. When you shut down an internet site where people share illegal movies or music, more pop up in its place. Regime change in a country can result in an even worse regime. An apt adage is Don’t kick a hornet’s nest, meaning don’t disturb something that is going to create a lot more trouble than it is worth. With all
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observer effect,
The observer effect is certainly something to be aware of when making actual measurements, but you should also consider how people might indirectly change their behavior as they become less anonymous.
when people realized they were being watched by their governments, some of them stopped reading articles that they thought could get them into trouble. The name for this concept is chilling effect.
it refers to when people feel discouraged, or chilled, from freely exercising their rights, for fear of lawsuits or prosecution.
For instance, a company will sue another aggressively over its patents to scare off other companies that might be thinking of competing with them.
Mandated harassment reporting can give victims pause when contemplating reaching out for help, since they might not yet be ready for that level of scrutiny.
The authors noted: “Suppressing health information searches potentially harms the health of search engine users and, by reducing traffic on easy-to-monetize queries, also harms search engines’ bottom line.”
This negative unintended consequence could be considered collateral damage.
When people are deported or jailed, even for good reason, collateral damage can be inflicted on their family members.
Sometimes collateral damage can impact the entity that inflicted the damage in the first place, which is called blowback.
Again, it is best to think ahead about what behaviors you are actually incentivizing by your action, how there might be perverse incentives at play, and what collateral damage or even blowback these perverse incentives might cause.
In other words, seemingly small changes in incentive structures can really matter. You should align the outcome you desire as closely as possible with the incentives you provide. You should expect people generally to act in their own perceived self-interest, and so you want to be sure this perceived self-interest directly supports your goals.
the boiling frog:
how a gradual change can be hard to react to, or even perceive.
From finance, short-termism describes these types of situations, when you focus on short-term results, such as quarterly earnings, over long-term results, such as five-year profits.
If you decorate your house one piece at a time in isolation, you won’t end up with a cohesive décor.
The software industry has a name for the consequences of short-termism: technical debt.
Startup culture has extended this concept to other forms of “debt”: Management debt is the failure to put long-term management team members or processes in place.
Diversity debt refers to neglecting to make necessary hires to ensure a diverse team.
unintended consequences of short-term thinking:
called path dependence, meaning that the set of decisions, or paths, available to you now is dependent on your past decisions.
Sometimes an initial decision or event may seem innocuous at first, but it turns out to strongly influence or limit your possible outcomes in the long run.
There was an old lady who swallowed a fly;
To escape the fate of the old lady or the boiling frog, you need to think about the long-term consequences of short-term decisions.
What kind of debt am I incurring by doing this? What future paths am I taking away by my actions today?
