Unintended consequences , perverse effectsWhat is called "the law of unintended consequences" states that many
decisions, actions, norms and rules tend to bring unexpected results, often
as bad surprises and negative and counterproductive
Such " perverse effects" can result from :
- Either errors and a lack of anticipation (*)
with the best intentions.
- Or unpredictable events
uncertainty and rapid changes.
Of course when an emergency needs an immediate solution, to give
a primacy to action over anticipation can be understandable.
According to the famous " Murphy's Law " the toast often falls on the
side of the jam.
There are of course some more favorable cases in which " serendipity"
makes that an error brings benefits (some errors led to great discoveries).
The loopholes and bad temptations
a system might include
Moral hazard (or moral risk) is the possibility for some opportunist people
or groups to obtain an unfair advantage, that might be harmful
to others, by using a flaw in a system
The system that is gamed this way can be :
* an unbalanced or frozen situation, or also a new one
* a business or human organization,
* a regulation,
* a contract type (notably an insurance contract),
* a type of allowance or benefit,
* the supply of under priced or free goods / services.
* and so on.
pilfering, stowaway, threshold effect, overuse or waste of free or nearly
But, just a moment, Torquemada, should all those not too fair behaviors
be condemned without exception?
- Sometimes it's in good faith
can even be under the idea that it compensates an injustice or an
Buts sometimes a dishonest, abusive or uncivil behavior is obvious.
The case of economics, management and finance
rewards for achieving some performance objectives, usually
If this reward system is designed in a "wild" way, it can lead (see
bank traders bonuses) to focus on short term results, to neglect caring
for the long term, to try highly risky "big deals" and even to
engage into frankly dishonest deals.
=> We may then speak of " perverse incentives ".
"As this is not my own money,
* if it works, I pocket a good slice of the profit,
* if it fails, those who brought the money will take the loss."
overleverage and favored the financial sphere (finanzialisation)
over the economic sphere , and the damage that goes with those
Financial rescues themselves might backfire as the opportunist
who gamed the system followed by some imitators) would conclude:
"Why I would not do it again as I will be rescued if things go wrong" .
Economists call "negative externalities" the nuisances that some
activities of a company or an institution bring to other people while
satisfying its own interests. The equivalent of military "collateral
True and false countermeasures
Or sliding the cursor to the middle?
Reasonable anticipation, OK!
were not anticipated, it is as if the decision or system was meant to favor
Or maybe ...it was intentional (as "special interest" lobbies might have
succeeded in obtaining regulations that are biased in their favor), but this
is not always the case.
If the person or entity responsible for designing and operating the system
did not install safeguard, from the start or, as not all loopholes can
be foreseen, at least once a serious distortion arose, incompetence and
negligence can be suspected, even if the intentions were honorable
(Conscience without science ...),
Aside the ethical sense expected from the users, protections are done by
anticipating and monitoring in a way that is designed to
prevent or stop any overflow.
Over anticipation and rigidity, no!
as is the case of an overreliance in regulations or an overuse of
the precautionary principle as seen below.
To raise too many foolproof barriers leads to a lack of flexibility and an
illusion of safety.
- Regulations that are too narrow or rigid
smartest players to circumvent them, or inciting to
corruption so as to get privileges.
Of course too vague regulations are not real regulations and
they rest on good faith and ...smart vigilance by empowered
- Such hyper-regulation might also block evolutions
It could also reveal itself unenforceable, or non'understandable
in its complexities.
It can quickly become obsolete when facing changes,
unless it is constantly revised, something which undermines the
legal visibility and discourages the initiative again.
- For example, the sacrosanct precautionary principle
It is based on the illusion that we can avoid all risks and it can end
up in condemning all innovations, since by nature it is impossible
to know, even after serious testing ("right to experiment"), the
ultimate effects of entirely new things .
If we follow the paradox to its end, past innovations would
be banned, since everyone knows the damage still caused
everyday by the wheel and the fire, how devilish!. ;-).
Back to collection: economic articles migrated from Knol
Back to collection: decision psychology articles migrated from Knol
Pageviews for this article before migration from Knol: 1.7 k