Goodheart's Law

[Jonathan D Halvorson <jdh11@xxxxxxxxxxxx>]

"Goodheart's law" is surely an overstatement, but not quite in the way
that John asserted (which is the same thing I've always heard in the past:
all and only noncausal correlations collapse when used for control
purposes.)

Instead, the correlation can collapse even if it does reflect an
underlying causal relationship. In particular, you can expect it to
collapse if the regularity is being exploited at the expense of those
whose actions constitute the regularity. To put it very simplistically: A
rational agent has an interest in avoiding such exploitation, and must
alter her behavior so that she is no longer exploited in order to remain a
rational optimiser.  Since it is ridiculous to assume perfect
information, computational power, etc., whether or not an exploited
regularity actually will change depends on the information agents receive
and understand, on whether all things considered it costs more to change
than to allow others to profit at one's expense, and so on.

Other correlations, on the other hand, may actually be strengthened when
they are transparently used for control purposes. The effect on the
market when the Fed changes interest rates is surely made more
reliable because people expect it to have a certain effect.

If I have one major beef with most economists, including many
post-keynesians, it is that they equate causal relationships with highly
stable causal regularities. When we are dealing with the
causes and effects of actions (reasons-responsive agents), there is no
justification for this assumption. It must be established by the evidence
in each case, and even then the possibility for variation in the
regularity must be respected.

Jonathan Halvorson

On Fri, 29 Dec 2000, John O'Donnell wrote:

> GGard97342@xxxxxx wrote:
> >
> > Is not the Phillips Curve a case study for Goodhart's Law?
> >
> > The story is that Phillips was taken to see Edward Heath, British Prime
> > Minister  1970-74, and persuaded Heath to use his theory as a basis of
> > policy. The result was the curve jumped several notches to the right on the
> > inflation scale.
> >
> > Most people regard Goodhart's Law as a good joke. I believe it is far more
> > than that, and feel it is a pity that the rest of Goodhart's work is not as
> > soundly inspired.
>
> Goodhart's Law -- "Any observed statistical regularity will
> tend to collapse once pressure is placed upon it for control
> purposes" -- is an over statement of the problem. It isn't
> that statistical regularity will collapse upon use; it is
> only such correlations that lack causal relationships that
> will collapse. The Phillips curve is a relationship that
> lacks causality, dQ/dM = 0 is not.
>
> --
> 			-- jbod
>
> 		Tax Privilege, Not People
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> .
>

Jonathan Halvorson
Department of Philosophy
Columbia University