CORONAVIRUS: THE REAL RISKS AND HUMAN BIASES BEHIND THE PANIC

Note: This was originally written for my weekly newsletter. You can sign up for it here.

Welcome to a special coronavirus edition of MFM, the only weekly newsletter that refuses to cancel its flights and believes eating fruits and vegetables is more useful than wearing a face mask. Each week, this newsletter breaks down three ideas that usually revolve around social psychology, cognitive biases, and some light philosophy.

This week, I’d like to use coronavirus as a case study to talk about the difference between systemic risk and individual risk, why some people are way more worried about this than others, and what sorts of cognitive biases are influencing us all.

So get your hand sanitizer ready. This is going to be a long one.

(Note: If you enjoy these newsletters, even when they aren’t about coronavirus, please consider forwarding this email to a friend and suggesting they sign up here. It’s free. And almost as useful as a hospital bed… almost.)

1. THE REAL REASON TO STAY HOME

A few weeks ago, when I wrote about coronavirus, I made two predictions given the data. First, this thing is going to spread across the planet and it’s probably inevitable that most of us get it at some point. Second, that it’s probably way less deadly than the numbers coming out of China originally made it appear.

Both of these ideas seem more and more likely to be true with each passing week. China was underprepared when the outbreak occurred and has since taken drastic measures to curb infections. Also, in the vast majority of cases (80%+) people have only mild symptoms, those akin to a regular cold or flu. In fact, the symptoms for many are so mild that it’s now suspected that large numbers of people who have the virus aren’t aware of it.

What we’re seeing now is an increase in quarantining—people staying home, working from home, conferences and events (e.g., SXSW) canceled, flights canceled, towns and neighborhoods put on lockdown. All of these things seem drastic in the face of what amounts to most people as just a really strong flu going around. As such, it seems the majority of people are blowing this off as yet another case of the media overreacting to nothing.

Amazingly, I disagree. And I say this as someone who has recently written a 30-page article criticizing the media for overreacting to everything. So, it’s not every day I admit that a media panic is, well, probably not just a made-up thing.

Now look, I know that the flu kills like a ton of people each year and I get that this thing is really only dangerous to people over the age of 70 and I understand that the stock market has plunged more than a broken toilet the past few weeks.

But what’s important to understand is that the point of the quarantines isn’t to prevent us all from getting sick. The point of the quarantines is to slow the spread of the virus enough to prevent overloading the healthcare system.

Roughly 10-15% of people infected need to go to the hospital. Right now, epidemiologists are saying we can expect anywhere from 40-70% of the world population to be infected in the next year. Let’s say that’s an exaggeration and go with a more conservative 30%. In the US, that means roughly 110 million people getting sick. And of those 110 million, over 10-15 million or more need a hospital bed.

Yet, the US only has 924,000 hospital beds… and about two-thirds of those are filled at any given time with, you know, people with cancer and shit.

So, while staying home, from an individual risk perspective, seems unnecessary and an overreaction, from a systemic risk perspective, it’s the only prudent thing to do. The more people who go out and about, the faster this thing spreads, and the faster this thing spreads, the more the hospitals get flooded, and the more the hospitals get flooded, the more people die unnecessarily.

It’s that simple.

So no, you and I aren’t going to die. Hell, we might not even get sick. But we might get others sick and that might cause others to die. So… Yay.

2. PICK YOUR POISON: HEALTH CRISIS OR ECONOMIC CRISIS?

If you quarantine large swaths of the population, now you’ve created another predicament for yourself: commerce grinds to a halt.

It’s estimated that 30% of small businesses in China are closed right now. Japan closed all of their schools for March, sending nearly a million teachers home without work. Millions of workers are telecommuting rather than going into the office, likely causing productivity to drop. Thousands of flights, cruises, conferences, and events are being canceled around the world.

If you do the prudent thing for the population’s health, you introduce a new systemic risk: economic downturn. But if you avoid an economic downturn by encouraging people to go about their lives as normal, you exacerbate the risk of a public health crisis.

It’s interesting to see different cultures taking different approaches to this conundrum. Some countries are clearly more willing to give up economic stability for the sake of public health. Other countries are willing to risk a health crisis for the sake of short-term economic stability.

The policy in the US so far has been mostly, “Nothing to see here, move along.” Trump has publically compared the virus to the flu and told people that he thinks it will mysteriously go away. The population remains woefully under-tested and hospitals under-equipped. Everything seems designed to minimize panic and stock market fallout rather than maximize safety. In the US, as always, “it’s the economy, stupid.”

Compare that to the responses in China, Italy, and South Korea, where entire towns and neighborhoods have been quarantined and governments are administering thousands of tests per day to pretty much anyone who gets sick with anything. As a result, Italy and Korea’s infection numbers are sky-high compared to other developed countries, thus making them appear to be ground zero for this thing. But my guess is that in the long run, they will come out of this much better than most.

And then, as always, there’s the North Korean solution, where the first person to test positive for coronavirus was taken outside and shot. Well, I guess that’s one way to respond to it.

3. OUR COGNITIVE BIASES IN ACTION

I’ve written quite a bit in the past about how our minds are inaccurate and we form erroneous beliefs based on irrational feelings.

Coronavirus is interesting because people seem to default to either panic mode or denial. It’s either, “The world is ending!” or “What’s the big deal?”