The Brainy Business Podcast – Episode 559

"The Cobra Effect: When Good Intentions Backfire"

Host: Melina Palmer
Date: January 8, 2026

Episode Overview

In this episode, host Melina Palmer explores the "Cobra Effect"—a fascinating behavioral economics concept that highlights how well-intended incentives or policies can create unforeseen and often detrimental consequences. By examining real-world examples from history, business, and policy, Melina illustrates how incentives can backfire when human behavior isn’t fully considered. The episode provides rich anecdotes, practical recommendations, and probing questions for anyone designing incentive programs or organizational policies.

Key Themes and Discussion Points

1. Understanding the Cobra Effect

• Definition: When a solution to a problem creates unintended consequences that make the problem worse.
• Origin Story (03:13)
  • The British, aiming to reduce cobras in Delhi, set bounties for cobra skins. People started breeding cobras for profit, and when the bounty was removed, many simply released them, worsening the issue.
  • Melina:

    “What could possibly go wrong? ... But the cobra problem didn’t seem to be getting any better… it turns out a few people started their own cobra farms.” [03:52]

2. Historical & Modern Examples of the Cobra Effect

• Rats in Hanoi (French Colonial Vietnam): (05:01)
  • Bounty for rat tails led to rat farming and increased rat populations.
  • “Rat farms popped up outside the city. And this is even easier than the cobras because you only need to bring in the tail.” [05:59]
• Wild Boars in Georgia (2007): (07:51)
  • Bounties on pig tails led to people sourcing tails from slaughterhouses rather than hunting.
• Traffic Congestion Programs – Colombia, Mexico City, Athens: (08:54)
  • Restrictions on driving led to people buying more, often old and polluting, cars to circumvent limits.
  • “This caused total congestion, and driving to go up. ... often the second cars people were buying… were older cars that were worse for the environment.” [10:48]
• Quebec Orphanages (1940-1960): (12:20)
  • Funding discrepancies led to orphaned children being misdiagnosed as mentally ill to secure more resources, resulting in trauma and abuse.
• Ghost Net Collection & Gun Buybacks: (14:26)
  • People vandalized useful nets or traded in cheap firearms for profit.
• Walmart Plastic Reduction Effort: (17:41)
  • Thinner bags led customers to double-bag, ultimately increasing plastic use.

3. Core Lessons about Incentives and Human Behavior

• The Principle: “No loophole goes unexploited.” [15:24]
• Highlighted Quote (Psychology Today):

  “The road to hell is paved with good intentions and cobra skins.” [15:37]

• The Disconnect: Rules are often designed without practical consideration of real-life behaviors or needs.
  • “When a family is willing to have four cars for two people to get around your rule, something’s wrong.” [14:48]
• Perspective Taking:
  • Solutions must be designed with empathy and imagination about how others might behave—even in ways you personally wouldn’t.
• Real-Life Organizational Examples: (23:10)
  • Incentive gaming at an airline—employees transferred every caller for a $1 bonus regardless of need.
  • Bank card rewards—customers making minimum qualifying transactions through low-value purchases.

4. How to Prevent Cobra Effects

• Critical Questions to Ask When Designing Incentives: (21:53)
  • Why are we offering this incentive?
  • What benefit do we want, and what benefit does it provide to participants?
  • Are there easy ways to game the system?
  • What restrictions are needed, and might they cause additional problems?
• Diverse Perspectives Matter: (28:22)
  • Involve diverse teams (and perhaps outsiders) to spot loopholes.

5. Memorable Quotes & Moments

• “Incentives are great and they can absolutely work. But you need to be really thoughtful about what someone might do to benefit from whatever you are proposing.” [15:44]
• “If the loophole is big enough and there are enough people willing to jump through it, that can be a time where your solution makes the problem worse.” [17:09]
• “Every decision has a not necessarily equal or exactly opposite reaction. But you know what I mean.” [18:30]
• “Even small incentives can cause people to look for loopholes and to find opportunities for their own benefit.” [22:37]
• “Don’t just throw cash incentives at any problem without thinking through all the loopholes and ripples and possible backfires.” [27:12]

6. Contemporary and Surprising Examples

• Amsterdam Canal Houses – Taxes on frontage led to unusually narrow but deep buildings. [28:53]
• Pepsi Points for a Jet – Pepsi’s promotional joke led to a serious lawsuit and Netflix documentary when a customer tried to claim a Harrier jet. [29:32]
• Wells Fargo Account Scandal – Excessive sales pressure led to fraudulent activity, tanking trust and incurring massive fines. [29:59]

Actionable Takeaways

• Don’t Underestimate Ingenuity: People will find and exploit loopholes if incentives are misaligned.
• Consider Ripple Effects: Think through the practical, real-world implications beyond your own perspective.
• Test for Loopholes: Proactively brainstorm ways that your policy or program might be gamed before rolling it out.
• Use Empathy & Imagination: Visualize yourself in your users' shoes to spot potential issues.
• Diversity is Key: Bring in people with varied experiences (even external advisers) to stress-test your plans.

Timestamps for Key Segments

| Segment | Time | |-----------------------------------------------|-----------| | Cobra Effect Definition & Origins | 03:13-05:01 | | Rat Bounty in Hanoi | 05:01-06:59 | | More Modern Examples (Wild Pigs, Traffic) | 07:51-11:02 | | Other Historical Cases | 12:20-14:26 | | Contemporary Backfires (Walmart, Guns) | 14:26–17:41 | | Practical Advice for Incentive Design | 21:53–22:52 | | Organizational Anecdotes (Airlines, Banking) | 23:10–26:17 | | Broad Lessons & Final Thoughts | 28:22–32:00 |

Final Thoughts

Melina closes by challenging listeners to scrutinize their own organizations, rules, and reward systems:

“Where might a COBRA be hiding in your own systems? What well intentioned rule, process or metric might actually be nudging people away from the outcome you really want?” [30:56]

She reminds us that thoughtful, behavioral-insightful planning can steer us away from these all-too-common pitfalls.

Further Resources

• Past relevant episodes on incentive design, change management, and nudging (linked in show notes)
• Free worksheet on incentive planning at thebrainybusiness.com/220
• Upcoming episode with Lee Caldwell on imagination and branding (#230, coming November)

Connect with Melina:

• Social: @thebrainybiz (most platforms), Melina Palmer on LinkedIn
• Email: melina@thebrainybusiness.com

For more on behavioral economics, business incentives, and the psychology of why people buy, subscribe to The Brainy Business podcast and check the episode’s show notes for links, worksheets, and further reading.