"The road to hell is paved with good intentions." - Unknown.
The “Cobra Effect” is a term that describes an attempted solution that actually makes a current problem worse.
The Cobra Effect originates from British colonial rule in India. At that time there was a problem with venomous cobras roaming around the streets and scaring people in Delhi.
The British government decided to take action to stop the problem. The government offered citizens a financial incentive to redeem dead cobras that they were able to catch from the street. At first, their solution at first appeared to be effective. In the end, it actually backfired.
Many Indian citizens that had a entrepreneurial mentality started to breed their own cobras for financial reward. Cobra breeders ended up killing their own cobras and redeemed them for money, while still continuing to breed more cobras for future. An easy way to make money in an environment of scarcity.
“Never, ever, think about something else when you should be thinking about the power of incentives.” According to Charlie Munger, there are only a few forces more powerful than incentives.
The British government found out about this ‘loophole’ and stopped the financial incentives. This forced the cobra breeders to release the snakes back into the streets since they were not valuable to them anymore. This ended up making the cobra problem worse than it was when it started.
The British government lacked perspicacity.
Actions all have consequences. Some actions, have positive consequences and some have negative consequences. It is the law of unintended consequences. And in the world of consequences, intentions often don’t matter, only outcomes do.
The British government’s downfalls included:
failure to monitor the situation
not understanding the power of incentives
adjusting the incentive, rather than getting rid of it completely
You see this concept play out in business often. Business leaders make a well intended decision to fix a problem or drive a result, but if it is not well thought out, it can actually make a situation worse.
In a world where money is king, you often see sales reps or business owners focused on selling misaligned solutions to people that do not need them, just to make bank. It all about short-term gain, but in the end they only create a larger problem. They need to keep finding new customers to fleece rather than focusing on long term solutions that keep customers coming back.
“Play long-term games with long-term people. All returns in life, whether in wealth, relationships, or knowledge, come from compound interest.” - Naval Ravikant.
Failure is always an option for those who are unprepared. When doing things in life, you need to look at the long-term impact of that decision. You can read my previous post about planning and decision making here:
Thanks for the content. Every article is very informative.