Thread by @finshots

1./ Have you ever been in a situation where you’ve tried to solve a problem, but ended up aggravating it?

Well, there’s a name for that situation - The Cobra Effect.

🧵...

2./ The name finds its roots in an anecdote about the British in colonial India, who offered cash to locals who would deliver dead snake skins.

3./ Instead of reducing the mushrooming number of snakes, this created ‘perverse incentives’ for Indians. Yes, people started breeding snakes to get rewards.

And this is applicable even today.

4./ Think Airbus. It wanted to make its airplanes quieter in order to enhance the flying experience.

And while this initiative was successful initially, it eventually led to thousands of complaints by passengers and pilots. What happened?

5./ Well, they said that the long-haul jets are so quiet they can hear every crying baby, snoring passenger, and flushing toilet, making it impossible for them to sleep or work during the flight. Overall, it made the flying experience worse.

6./ And here’s the thing - The Cobra Effect exists because we give in to linear thinking. For instance, we certainly factor in what’s going to be the ‘immediate’ effect of a choice we make but not what comes after. We think that a problem has a direct or linear solution.

7./ Much of the world, however, is not linear—set a reward on dead cobras and you might end up with more cobras. An intended outcome might occur, but a number of unexpected outcomes or cascading effects might also occur.

8./ So the next time you make an economic decision, you might want to think about second-order effects.
Let us know your thoughts.

This effect is also seen in the insurance industry. Your agent's incentives might not align with your objectives. So #AskDitto first- @joinditto