- A Critical Election - November 4, 2020
- Renewable fuels and ice cream - October 20, 2020
- The Pandemic or the Lockdown: Which Has Been Worse? - October 14, 2020
Governments implemented strict policies to stem the spread of the novel coronavirus. The widespread response suggests that governors and presidents saw COVID-19 as an unprecedented public health threat. Or did it? The economics of herding suggests possibly not.
The “Wisdom of Crowds,” also the title of James Suroweicki’s excellent book on this subject, implies this interpretation. Experts in each state reviewed knowledge on the virus, its potential lethality, and vulnerabilities of their state. Each lockdown decision provides evidence of a perceived threat.
Independent, informed evaluations represent our best way to approach the truth. The argument is NOT that voting establishes truth; experts can be wrong even if they all agree. The consensus of experts is more likely to be correct.
The policy response could reflect other factors. We should remember that safety is a luxury good; as people and nations become wealthier, we spend more on safety. The potential for say 100,000 deaths from a pandemic will be far less acceptable today than fifty years ago. Yet crowds are not always wise; the “Madness of Crowds” is another possibility. The independence of expert judgments affects whether we gain wisdom or create a herd.
Training in public health affects experts’ independence. Experts in any field receive years of specialized, intensive training, in law school, graduate school, or medical school. Academic disciplines have a dominant paradigm or way of making sense of the world. Different public health experts may share the same way of thinking and make the same mistake on COVID-19.
“Information cascades” pose another problem, often seen in business. A group of managers assembles to discuss opening a new retail store. After independently assessing the merits and demerits, most of the managers see the new store as a mistake. Yet the first manager argues that the new store will be wildly successful, and the others agree. After the store fails, the managers all recall their initial misgivings.
What happened? Each manager knows her personal assessment of the venture could be wrong and revises her assessment based on others’ opinions. Managers do not want to appear incompetent – the only one unable to see the new store’s great value.
The visibility of errors also matters. There’s (allegedly) a saying among investment advisors that “no one ever got fired for recommending IBM.” Suppose an advisor recommends a stock no one else likes. If correct, the advisor’s clients make lots of money. If wrong, the advisor will need to find a new job. By making the same common recommendation, no advisor signals below average investment acumen.
An economy or business needs to encourage occasional deviations from the herd. We need contrarian investors and thinkers. In markets, profit rewards correct contrarians. And some people are naturally contrarian. As Henry David Thoreau wrote, “If a man does not keep pace with his companions, perhaps it is because he hears the beat of a different drummer.”
Does the policy response to COVID-19 reveal herding? The policies involved – business and school closings, stay-at-home orders – are called nonpharmaceutical interventions (NPI). NPI have their critics; a 2019 World Health Organization review found the evidence for the effectiveness most “limited.”
A divergence of opinion suggests herding was unlikely. If proponents of NPI won out in debate, this suggests that governors and presidents found them more promising. Vigorous debate usually improves decisions.
Our elected executives, I think, face a bias to action, worsened by the 24-hour news cycle and running tallies of COVID-19 cases and deaths. Yet the nearly 50 million jobs lost since March are also highly visible. Our inability to observe deaths without a lockdown ironically makes the benefits appear larger; perhaps millions have been saved.
Eight states never issued stay-at-home orders and nations like Sweden eschewed lockdown policies, so we have not witnessed complete herding. More likely the bias to take action resulted in excessive policies, and lockdowns imposed too early in some states.