That was one the headlines for last month’s market collapse. In describing the hedge funds’ role and investors’ reluctance to get back in, James Surowiecki concluded with this, the money quote of the month so far: “It’s hard enough to catch a falling knife. But it’s nearly impossible when hedge funds are hurling it.”
He dubs it the Incentive Caused Bias.
“A man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior [like a salesperson who harms her customers by selling them the wrong product because she gets paid more for selling it, versus the right product -- see, e.g., the mutual fund industry].
...Another generalized consequence of incentive caused bias is that man tends to "game" all human systems, often displaying great ingenuity in wrongly serving himself at the expense of others. Anti-gaming features, therefore, constitute a huge and necessary part of almost all system design.”