In colonial India, the British government offered a bounty for dead cobras. People responded rationally. They began breeding cobras to collect the reward. When officials discovered what was happening, the bounty was withdrawn. The breeders then had no reason to keep their snakes and released them. The original problem became worse. The story became known as the Cobra Effect. But the interesting part isn’t the snakes. It is the design of the incentive. A government wanted fewer cobras. It created a system that rewarded producing cobras. The measurement was aligned with the desired outcome only on paper. Markets have the same danger. Reward the metric, and participants eventually learn to optimise the metric not necessarily the thing the metric was supposed to represent. An incentive doesn’t control behavior. It reveals what behavior the system makes profitable. #Economics# #Trading# #BehavioralFinance# #MarketStructure#