The Cobra Effect: How Leaders Can Avoid Unnecessary Bad Decisions

“The Cobra Effect” is a theory created by German economist Horst Siebert in 2001. Also known as “perverse incentives,” it was Siebert’s hypothesis that leaders can often make situations worse when their decisions cause unintended consequences.

Siebert tells the story of a cobra infestation affecting the city of Dehli, India. The British government felt the best way to solve the problem for their colony was to place a bounty on the venomous reptiles. This pay-for-dead-cobra policy worked at first but then an interesting dynamic happened.  The snake population was no longer shrinking.

You see, many people in Dehli with an entrepreneurial spirit saw a business opportunity.  They decided not to kill the cobras, but rather to breed them. Yes, they would still sacrifice a number of snakes to generate healthy cash flow. But they would keep a number of the deadly animals alive to continually produce baby cobras generating continual recurring revenue.

Ultimately, the incentive plan instituted in the British colony only made the cobra infestation worse. Thus, the Cobra Effect was invented.

Only when the British government stopped paying for dead cobras did the numbers reduce. Once people were de-incentivized, they eliminated their inventory (is that a nice way to put it.).

Overtime Pay

I once had an interesting conversation with a friend of mine who managed a Georgia food processing plant. The company’s northern corporate office instituted a generous overtime policy. If the employees needed additional time to hit their production goals, they would provide double-overtime-pay.

What then happened was the employees did the minimal amount of work possible during regular hours. They would then do the majority of their work during overtime, receiving double-pay.

The Cobra Effect was in play. Decisions made by corporate had unintended consequences – lower productivity and higher costs. The company eventually ended its overtime policy and productivity returned to sufficient levels during normal working hours.

Churches and The Cobra Effect

During the pandemic, countless church leaders told their attenders they did not need to come to church, they could experience church online from their living room or phone. These well-meaning leaders never factored in The Cobra Effect.

When these pastors told people they did not have to come to church, the unintended consequence was the people actually believed them. In many churches 60% of attenders chose to stay at home when the doors reopened. Maybe this was God pruning His church but you cannot discount the unintended consequences of many pastors’ instructions.

In addition to many people realizing they did not miss weekly church services, there has been a financial impact as well.

Last week, I had an African-American church leader tell me they were being forced to layoff their entire staff. Only 40% of their congregation returned (this is normative) but their giving is only 30% of what it previously was. You see, in this African-American church, you were expected to financially support the ministry if you were in attendance and received the benefits of the ministry. Giving was actually done publicly. People did not know how much you gave, but they knew if you gave or not. Like it or not, this was this church’s culture and expected behavior.