Distorted perceptions of risk

In 2017, I moved from Middlesex County, Massachusetts to Orange County, CA. The two counties are somewhat similar. Both are middle to upper middle class suburban counties, full of professionals, located just outside major cities. Orange County has 3.2 million people, while Middlesex County has 1.6 million. No big deal, right?

Actually, it’s a huge deal. So far, 221 have died in Middlesex County vs. 22 in Orange County. That means the risk is 20 times higher in Middlesex County. Read that again. I didn’t say 20% higher; I said 20X. That’s a lot! I dodged a bullet.

Does that vast different in risk make any difference? Probably not. When I go out to get take out food or to go grocery shopping, I wear a mask and try not to walk close to other people. That’s almost exactly what I’d be doing if I still lived in Middlesex County. And I imagine most other people are the same.

I recall reading of a behavioral economics paper that showed that most people respond roughly equally to risk factors of 10%, 1%, 0.1% etc. [If someone knows of the paper, send me a link and I’ll add it here.]

So even though my rational brain knows that Orange County is pretty safe and I know that 20X is a really big deal; I act on my gut, which treats the two places as equally risky.

Here’s a second example:

About 34,000 Americans have already died of Covid-19 and the experts tell us that we are roughly half way through the first wave of the epidemic, which is expected to fall back this summer (and perhaps rise again next winter.) So if the models are correct, Orange County might end up with another 22 more coronavirus fatalities by late summer.

But that data point is extremely misleading, as deaths typically follow with at least a 2 or 3-week lag on first getting infected. Given the bell-shaped curve of infections, that means a pretty large share of the extra 22 deaths we can expect in Orange County have already been infected. Thus the risk going forward of going outside and getting newly infected and dying is actually quite low in Orange County, at least this spring and summer. (Of course don’t take this as license to go out and act recklessly, remember the Lucas Critique!)

In an earlier post, I argued that in the early stages of the epidemic we underreacted, and later on we would eventually overreact, at least from an individual self-interest perspective. While the risk today in America is probably lower than many people suspect, back in February and early March it was far higher than people realized. Recall Mardi Gras, the Biogen conference, and those Chinatown parades.

This overreaction from an individual perspective is actually good news from a social perspective, as there are externalities from socializing during an epidemic. That’s why it’s not obvious that mandates are needed. The two factors partially offset.

In my previous post I recommended looking at Taiwan, as I’d hate to see libertarians put their eggs in the Sweden basket, in case public opinion there eventually forces stricter measures. The concept of no mandates is good, but requires skilled execution on other fronts. But I wasn’t arguing that Sweden’s decision not to use mandates was necessarily wrong.

In Wuhan, the government is again allowing people to go to restaurants, but they aren’t showing up. This is basically what I had in mind in several previous posts:

Wuhan’s 11 Million People Are Free to Dine Out. But They Aren’t

Is it too much to hope that the public’s excessive worry about small risks will exactly offset the externality problem of socializing during an epidemic? Of course. But that’s not the point. The real point is that we don’t know which factor is stronger, and hence we have no reason to adopt various “mandates”, at least in the current situation. By the same logic, we don’t know enough about masks to know if the government should be encouraging them or discouraging their use. So do nothing!

On the other hand, people who argue we should “take the government mandates off so the economy can flourish” are likely to be severely disappointed, as we can already see in Wuhan. President Trump won’t decide when the US re-opens. The governors won’t decide when the economy re-opens. The public will decide.

For instance, the airliners are still flying, but they are mostly empty.