Understanding Goodhart’s Law of Metrics

Goodhart’s Law: When a Measure Becomes a Target

British economist Charles Goodhart once observed, "When a measure becomes a target, it ceases to be a good measure." This idea, known as Goodhart’s Law, explains why organizations, leaders, and even entire industries struggle when they optimize for numbers instead of real outcomes.

Metrics are essential for tracking progress, but when people focus too much on hitting specific numbers, they often game the system, distort incentives, and sacrifice long-term value for short-term gains.

This issue is particularly damaging in high-stakes industries where true success cannot always be neatly quantified.

Why This Happens: The Dark Side of Metrics-Driven Thinking

1. Optimizing for the Metric Instead of the Outcome

When numbers become the primary goal, people start chasing the metric rather than improving the underlying reality.

Examples:

• Employee Engagement Scores: Managers might pressure employees to rate highly rather than genuinely improving work culture.

• Sales Quotas: Teams may push low-quality deals to meet short-term targets.

• Social Media Growth: Content teams may resort to clickbait rather than meaningful engagement.

By optimizing for the number rather than the real goal, organizations undermine the very thing they were trying to improve.

2. Distorted Behaviors and Incentives

When the wrong incentives are in place, people will do whatever it takes to hit their numbers—even if it leads to unethical, counterproductive, or meaningless outcomes.

Examples:

• Short-Term Stock Gains: Companies cut R&D to boost quarterly earnings, weakening long-term innovation.

• Hospital Efficiency Metrics: Hospitals discharge patients too soon, risking complications.

• Customer Service Metrics: Call centers rush customer interactions, reducing actual service quality.

Metrics should inform strategy, not drive it. Otherwise, people start playing the system rather than improving actual performance.

Featured Insight: How Shopify’s CEO Tobi Lütke Navigates Goodhart’s Law

Tobi Lütke, Founder and CEO of Shopify, provides a practical example of navigating Goodhart’s Law, emphasizing the importance of qualitative judgment alongside quantitative data.

"Goodhart’s Law is real. The moment a metric becomes a goal, it's no longer a useful metric."

Shopify intentionally avoids standard Silicon Valley metrics such as rigid KPIs or OKRs, recognizing their limitations:

"No metric by itself is a complete heuristic for a complex business. There's a million different tensions in the company, and you can't keep them all in harmony by optimizing for one thing."

Lütke emphasizes the dangers of overfitting for quantifiable elements, highlighting the value in unquantifiable factors:

"Everyone competes for what's highly quantifiable because it's fun—like a game. But the overlap between the most valuable things you can do and those fully quantifiable is maybe 20%. That leaves 80% of the value space unaddressed."

Instead, Shopify values deeply qualitative elements:

"Shopify is comfortable with unquantifiable things—tastes, quality, passion, love, hate—the strong emotions people have, the deep satisfaction a craftsperson feels when they've done their job well."

Metrics at Shopify serve a supportive, cockpit-like role rather than dictating decisions:

"We think about metrics as a cockpit for a pilot, but decisions are still made by pilots. This leads to better results."

Lütke urges leaders to be more accepting of qualitative judgments, emphasizing long-term brand representation and genuine pride in the work over short-term metrics:

"It's important to figure out conversion rates—but are you representing your brand? That's an unquantifiable question. Are you proud of what you've built? Do you feel it's your all-in?"

When Metrics Are Useful

Metrics aren’t inherently bad but must serve as indicators rather than rigid targets. A better approach:

• Ask: What are we truly optimizing for?

• Consider: Are we improving real outcomes or just manipulating metrics?

• Balance: Combine multiple measures to prevent gaming.

A holistic approach ensures metrics guide rather than dictate outcomes.

The Problem with Over-Reliance on Metrics in Mental Health & Executive Performance

1. Vanity Metrics vs. True Impact

Simple metrics often fail to reflect real transformation:

• High session completion rates don’t necessarily mean clients make better leadership decisions.

• Client satisfaction scores don’t equate to genuine growth in resilience or decision-making.

Short-term improvements do not always indicate long-term transformation.

2. Reductionism: Oversimplifying Complex Human Factors

Leadership, decision-making, and resilience are complex. Distilling these into a single metric creates oversimplified views:

• Burnout reduction percentages ignore nuanced factors like improved mental agility.

• Leadership confidence scores may reflect learned responses rather than true self-awareness.

Metrics should supplement, not replace, deeper qualitative assessments.

3. Gaming the System: When Metrics Become the Goal

Rigid metrics lead professionals to optimize for numbers rather than progress:

• Therapists may prioritize symptom relief scores required by insurance, neglecting deeper change.

• Executive coaching judged by self-reported confidence may foster superficial improvements.

Real impact requires prioritizing transformation, even if difficult to quantify.

How to Avoid the Goodhart’s Law Trap

1. Use Metrics as a Guide, Not the Goal

• Replace "90% engagement score" with "What workplace conditions drive genuine engagement?"

• Replace deal quotas with "Are we building sustainable relationships?"

2. Balance Quantitative and Qualitative Measures

• Combine hard metrics with subjective, qualitative indicators.

• Conduct deep-dive assessments beyond surface-level numbers.

3. Optimize for Real Outcomes, Not Shortcuts

• Focus on behavioral and organizational change, not reported scores.

• Recognize when a metric is being gamed rather than driving real progress.

Final Thought: The Right Way to Use Metrics

Goodhart’s Law reminds us that numbers alone cannot define success. Whether in business, leadership, or mental health, effective strategies balance measurable progress with qualitative insights.

Metrics should serve as a compass, not a destination. The key is optimizing for true outcomes, not just numbers.

Ultimately, real success isn’t what the data says—it’s what genuinely changes.